SHFE Nickel Fell Nearly 12% amid the News of Output Increase

SHANGHAI, Jan 10 (SMM) - Recently, the news of Tsingshan Nickel Industry increasing the production had a significant impact on the market. In terms of the futures market, the SHFE nickel prices fell for four consecutive days. As of the noon on January 10, the most-traded SHFE nickel contract fell 2.18%, with the largest decline of nearly 12%, and fell nearly 3.3% today. LME nickel also fell 2.66% last night.

The average spot price of SMM 1# refined nickel today was 215,950 yuan/mt, down 2.86% from January 9 and declined 9.5% from the highest point on January 4. According to SMM, on Junuary 9, Jinchuan nickel were quoted at 10,000-13,000 yuan/mt, with an average price of 11,500 yuan/mt, up 1,500 yuan/mt from the previous trading day. NORNICKEL nickel premiums were quoted at 6,800-7,000 yuan/mt, with an average of 6,900 yuan/mt, up 250 yuan/mt from the previous trading day yuan/mt.

The news of Tsingshan Nickel Industry increasing the production had a significant impact on the market

According to media reports, the refined nickel produced by Tsingshan Group were in high premiums over the nickel intermediate products for battery manufacturing. Tsingshan has already built a factory in Indonesia and cooperated with many copper producers in China including Yanggu Xiangguang Copper Co., Ltd., hoping to produce more valuable refined nickel. The media pointed out that if Tsingshan's plan is successfully realized, China's refined nickel output in 2023 may increase 100% from 180,000 mt in 2022 and the global refined nickel output will increase about 20%. As such, the production increasing plan of Tsingshan may change the global nickel supply pattern. On the one hand, the global oversupply of nickel has lasted for several years as Tsingshan Group expanded the production of nickel intermediates such as NPI and the demand from electric car sector weakened. On the other hand, the supply of nickel metal continued to be tight, boosting the higher premiums of nickel metal over other nickel products.

On December 19, 2022, some media reported that Tsingshan plans to build a new factory in Indonesia with an annual refined nickel output of 50,000 mt, and the project will be constructed as early as July 2023. As such, LME nickel fell by nearly $1,000/mt or 4% on that day.

The relevant news are provided by industry insiders while Tsingshan Group and Xiangguang have not responded yet.

According to analysts, Tsingshan Nickel plans to replace the standard products with non-standard products, forcing the standard warrant products to be delivered. But the non-standard products can not achieve mass production before June 2023, hence the short-term supply increase problem cannot be solved.

Nonferrous metals analyst Wang Zhiqiang said that if the news is true, the marginal increase in domestic refined nickel production in 2023 will be considerable after the new production capacity is put into operation. Considering the recent news, the bottleneck of converting secondary nickel to primary nickel is likely to be broken this year, and the extremely high premiums of primary nickel are also likely to shrink. The news may ease the market's concerns about the structural supply shortage of refined nickel in the first half of the year, which will be unfavourable for nickel prices. At present, it is uncertain whether the newly produced refined nickel is registered by SHFE, but the delivery pressure will be eased by selling non-deliverable goods to downstream enterprises. In the future, the explicit LME inventory is expected to gradually increase and the liquidity crisis will gradually ease.

As the inventory has not increased obviously, the nickel prices will stop falling and remain high in the short term after the bears pay off. In the medium and long term, with the expected increase in pure nickel production, the inventory will increase and nickel prices will return to fundamentals and fall from the high level. During the period, it is necessary to pay attention to the fact that the intensive withdrawal of bulls may cause large fluctuations.

Fundamentals

On the supply side, logistics services have been halted amid the approaching Chinese New Year, and thus the upstream enterprises were less willing to deliver. Imports continued to suffer losses, and overseas pure nickel supply continued to be tight. As of January 9, the import losses of refined nickel was about 2,800 yuan/mt, which narrowed compared with the previous day.

In terms of NPI, due to the active procurement activities in the early stage and pre-holiday restocking demand from alloy casting factories in the surrounding areas, the output of NPI plants declined in December. According to the SMM database, the NPI inventory in December decreased 6,500 mt in physical content month-on-month. Therefore, the NPI plants did not suffer great inventory pressure and the spot supply was relatively tight.

On the demand side, according to SMM research, participants in the stainless steel market gradually take holidays and the shipping transportation in some areas will also be halted. Steel mills also gradually conducted annual maintenance, hence the output in January will decline significantly. In terms of alloys, as the pre-holiday restocking of downstream enterprises has basically ended last week. As such, the transactions yesterday were weak.

In summary, SMM predicts the nickel prices will fluctuate weakly amid the as the losses of imported refined nickel, weak demand and unfavourable news.