Intertwined Dynamics and Downturns: Challenges in the High-Nickel Pig Iron Market

The recent dynamics in the nickel market have shown the intertwining effects of multiple complex factors, leading to a weakening in high-nickel pig iron (NPI) prices. According to the latest data, the weekly average price of SMM 8-12% high-nickel pig iron was 934.3 RMB per nickel point (ex-factory, including tax), a slight decrease of 2.1 RMB per nickel point compared to the previous week. Meanwhile, the Indonesian NPI FOB index also dropped by 0.7 USD per nickel point, indicating a continuation of the overall sluggish market trend.

On the supply side, high-nickel pig iron production within China is constrained by narrowing profit margins, with production in East and North China showing a slight decline. This situation is partly due to the falling market prices, putting pressure on production enterprises facing operational losses. In contrast, Indonesia has shown a different trend, with new capacity continuously being released. Besides, the shift from high-grade nickel matte to high-nickel pig iron production has caused an increase in output. As a major global nickel producer, changes in Indonesia's production undoubtedly add more variability to the market supply landscape.

On the demand side, the stainless steel industry's seasonal maintenance peak has weakened demand for high-nickel pig iron, especially since large steel mills have relatively sufficient future raw material reserves, making this week's market transactions particularly sluggish. Despite this, the premium of Indonesian laterite nickel ore remains stable, providing strong cost support for high-nickel pig iron, thus potentially limiting the short-term downside space for prices.

Notably, the price gap between high-nickel pig iron and electrolytic nickel continues to widen, with the average discount for the week being 309.1 RMB per nickel point, up by 7 RMB per nickel point from last week. This change indicates that under the backdrop of weak prices for downstream products like stainless steel, high-nickel pig iron is still in a negative feedback cycle, with price pressure on the raw material side.

In the overall market environment, macroeconomic factors are also at play. The strong US dollar index and the resilience of the US economy have exerted additional pressure, with global non-ferrous metal varieties facing challenges. The depletion of LME inventories has begun to show, and the momentum of accumulated domestic social inventories has weakened, leading to a slight rebound in spot prices. However, high-nickel pig iron prices still face downside risks, particularly with the anticipated weakening in procurement demand by major enterprises and the expectation of oversupply.

From the cost perspective, auxiliary material prices have slightly increased this week, especially coke prices, which have slightly rebounded amidst improving supply and demand relations, raising the auxiliary material cost line for nickel pig iron smelters. Furthermore, the rainy season in the Philippines has restricted nickel ore shipments, and although spot market transactions are relatively quiet, the price of Philippine nickel ore 25 days ago remains stable.

Overall, high-nickel pig iron prices still face the risk of decline in the short term, and the profitability dilemma for smelters may further intensify. Although auxiliary material prices may continue to rise, the prices of basic raw materials like nickel ore are likely to remain stable. Next week, the market may continue to see the expansion of the average discount between high-nickel pig iron and electrolytic nickel. Given the continued weakening of spot prices, steel mills and smelting enterprises need to closely monitor market trends and adjust their production and procurement strategies to cope with potentially more challenges.