Nickel market and fundamental outlook in the fourth quarter

In the third quarter, Shanghai nickel futures and refined nickel prices fluctuated mainly at high levels. The main contract price of Shanghai nickel rose from 138,000 yuan/ton at the end of June to a maximum of 155,000 yuan/ton, and the highest increase reached 12.4%. It is mainly driven by factors such as the high growth of dual demand for new energy and stainless steel and the continued structural tension in the supply of refined nickel.

In terms of nickel ore prices, the price of laterite nickel ore fluctuated mainly in the third quarter. The CIF import price of 1.5% laterite nickel ore in the Philippines rose from US$60/wet ton to the current high of US$91/wet ton in the past two years. The main reason is that Since the second quarter, high domestic stainless steel production has driven the growth of demand for ferronickel and nickel ore.

Finally, in terms of the price of ferronickel, the price of ferronickel in the third quarter showed a fluctuating upward trend. Since the second quarter, domestic stainless steel exports have strengthened and production restrictions have not been as expected, superimposed on the slowdown in Indonesia’s new production capacity for high-nickel iron, the supply of high-nickel iron continues to be tight, and the price rebounded from 1070 yuan/nickel to more than 1,450 yuan/nickel.

A review of nickel fundamentals in the third quarter

First of all, on the supply side, the overall supply of primary nickel continued to be tight in the third quarter, with refined nickel supply being the most in short supply, and the stock-to-consumer ratio continued to decline.

In terms of refined nickel, due to the long maintenance time of large domestic smelters, the cumulative output of refined nickel in China from January to August was 105,600 tons, a year-on-year decrease of 07,000 tons. Regarding the import and export of refined nickel, from January to August, the cumulative total import volume of refined nickel was 138,700 tons, a year-on-year increase of 64%. The output of overseas mines resumed production due to frequent accidents such as Nickel Russia, VNC and Vale. The output was greatly reduced. However, the import volume of refined nickel continued to increase, mainly due to the insufficient import of wet smelting intermediate products of nickel sulfate, the main raw material for new energy power batteries. The import volume of nickel bean stocks on the LME exchange rebounded sharply.

Regarding laterite nickel ore and ferronickel, the supply of nickel pig iron from China and Indonesia maintained steady growth. From January to August, China’s cumulative production of nickel pig iron was 306,000 tons, a year-on-year decrease of 11%. The lower-than-expected decline in domestic nickel pig iron production in the third quarter was mainly due to the increase in imports of laterite nickel ore from the Philippines and the lower than expected stainless steel production. From January to August, the cumulative import volume of laterite nickel ore in the Philippines reached 24.96 million tons, an increase of 52% and 37.3% year-on-year compared to 2020 and 2019, respectively. This resulted in a 30% year-on-year increase in the cumulative total import volume of nickel ore.

In terms of Indonesian nickel and iron, from January to August, the cumulative production of Indonesian nickel pig iron was 550,000 tons, a year-on-year increase of 63%. The production of nickel pig iron in Indonesia maintained a relatively high growth rate, mainly due to the higher-than-expected demand for raw materials due to the high production schedule of stainless steel in Indonesia. However, with the gradual resumption of overseas stainless steel production, from January to August, the cumulative net import volume of ferronickel in Indonesia was only 2.1 million physical tons, and the cumulative net import volume of ferronickel increased by only 18% to 2.5 million physical tons, which was lower than the growth rate of Indonesian ferronickel production. .

Secondly, on the demand side, as a whole, new energy electric vehicles and stainless steel continued to drive the demand for primary nickel to maintain a high growth rate in the third quarter.

High marginal growth in demand for primary nickel In terms of nickel sulfate production, the low-season domestic midstream power battery and terminal electric vehicle production and sales continued to be high in the third quarter, driving the growth of nickel sulfate production. From January to August, the cumulative domestic sales of new energy vehicles was 1.8 million, a year-on-year increase of 202%. Among them, the domestic sales of new energy vehicles in August increased by 18.6% from July to 321,000 vehicles, and the monthly market penetration rate increased to more than 18%. Affected by strong terminal sales, SMM surveyed statistics, from January to August, the cumulative output of nickel sulfate was 173,000 metal tons, an increase of 117% year-on-year. Overall, the domestic production of nickel sulfate in the off-season far exceeded expectations.

Primary nickel mainly consumes stainless steel. After the epidemic, the economies of China and Europe have recovered simultaneously. The production capacity of stainless steel in China and India is supplied to the world, and the output remained high in the third quarter. According to MySteel data, domestic stainless steel crude steel production remained high from January to August, increasing by more than 22% year-on-year to 22.5 million tons. Overseas January-August Indonesian crude stainless steel production increased by 1.63 million tons year-on-year to 3.18 million tons. Demand is not weak in the off-season and continues to support the strengthening of stainless steel fundamentals and prices. Strong overseas demand in Europe and the United States and the Southeast Asian epidemic affected supply-driven exports. From January to August, China’s cumulative exports of stainless steel crude steel increased by 29% year-on-year to 2.74 million tons, and exports of stainless steel products increased by 38% year-on-year to 690,000 tons. Driven by the toughness of real estate completion data in the third quarter and continued export-than-expected demand, from January to August, the apparent growth rate of stainless steel consumption reached 25% year-on-year. As of the end of August, the total social inventory of stainless steel in Wuxi and Foshan was still less than 650,000. Tons, the inventory of the 300 series is less than 380,000 tons, and the inventory of warehouse receipts is less than 20,000 tons.

Nickel fundamentals and price outlook for the fourth quarter

In the early stage, high ore prices and demand drove nickel ore imports to remain high. In August, nickel ore imports were 5.78 million tons, a year-on-year increase of 54% and a month-on-month increase of 11.4%. However, the supply of nickel ore is tight and the inventory accumulation is slow. At the end of August, the laterite nickel ore port inventory increased by 290,000 tons from the previous month to 6.12 million tons. Looking forward to the fourth quarter, nickel ore imports decline seasonally, and the superimposed inventory is lower than the average level. Nickel ore prices are likely to remain high.

As the seasonal supply of nickel ore began to shrink, and the domestic energy consumption dual control and production restriction policy became stricter, domestic nickel-iron plants may cut production marginally in the short term. According to SMM’s statistics, in August, domestic production of ferronickel fell by 3.8% month-on-month to 40,000 tons, and September output will further decrease. In addition, the overseas epidemic has always affected the progress of the production of ferronickel production lines in Indonesia. As of the end of August, a total of 23 new furnaces have been put into operation in Indonesia. Among them, 17 furnaces have been put into operation in the two parks in Qingshan, Indonesia, and 6 furnaces have been put into operation in the Delong Park in Indonesia. Therefore, in the fourth quarter, under the background of the slowdown in Indonesia’s ferronickel production growth and the seasonal reduction of domestic ferronickel production, the global ferronickel supply pattern may come to an end. Ferronickel prices are expected to continue to receive support from the supply contraction in the fourth quarter.

In terms of refined nickel, due to the substantial increase in battery-grade nickel sulfate output and stainless steel output, the supply and demand of refined nickel continues to be structurally tight. As of the end of August, the LME + SHFE + bonded zone stocks had been destocked with a total of 84,000 tons, the SHFE and bonded zone stocks had been destocked up to 26,000 tons, and the domestic SHFE stock had dropped to a historical low of 6,000 tons. Driven by low inventories and peak-season demand for nickel sulfate or exceeding expectations, refined nickel prices and term structure are expected to continue to strengthen in the fourth quarter.

In terms of demand outlook for the fourth quarter, the quarterly decline in sales of electric passenger vehicles in the United States and Europe in the third quarter was in line with expectations, but the cumulative year-on-year growth remained high. The fourth quarter is the peak season for global automobile sales. It is expected that global electric vehicle sales are expected to resonate and accelerate upward, and the downstream terminal boom may further exceed expectations. In addition, the new production capacity of the precursor plant continued to be put into operation in the third and fourth quarters, and the consumption of nickel sulfate and refined nickel is expected to increase marginally. Therefore, the author maintains a positive and optimistic judgment on the price of refined nickel as the quarter with the tightest supply and demand pattern in the electric vehicle industry chain is approaching.

The supply reduction drives the overall stainless steel fundamentals to improve marginally, and supports the prices of finished products. However, the raw material nickel and iron may turn into a weak supply and demand pattern, and the price uncertainty is greater. In terms of output, although overseas output remained high, domestic crude stainless steel output began to peak and fall. Entering September, domestic policies for dual control of energy consumption and carbon reduction and production restrictions have become stricter, new production capacity has been restricted, and the cumulative increase in stainless steel output in the previous period has been relatively large, and the pressure and magnitude of production reduction in the fourth quarter have been greater. In addition, the slowdown in the growth rate of raw nickel-iron in the fourth quarter and the strong expectations of short-term cost prices may restrict high production of raw materials. In terms of demand, stainless steel still has something to watch in the fourth quarter, and demand is expected to continue to drive high prices for finished products. Although overseas European and American service industries and manufacturing PMIs are gradually peaking, the traditional peak season for consumption in Europe and the United States may still remain in the expansion range above 60. The superimposed epidemic continues to affect Southeast Asian countries. Drive export demand. At the same time, the domestic investment side is expected to continue to underpin stainless steel consumption in the short term. Although development financing and mortgage financing loans for real estate funds are still tightening, leading indicators such as newly started area, commercial housing sales area and construction area maintained negative growth year-on-year, but completed area maintained positive growth in the short term may still support stainless steel demand. With the acceleration of domestic local special bond issuance in August, the cumulative annual issuance ratio has risen to 50%. It is expected that the fourth quarter of infrastructure investment is expected to further boost the demand for stainless steel.

Summarizing the marginal changes in supply and demand, the slowdown in the supply of primary nickel in the fourth quarter is under pressure, especially in the aspect of ferronickel. The increase in demand for new energy nickel sulfate is expected to partially offset the reduction in demand for ferronickel due to the reduction in stainless steel production. We expect that the overall tight supply of primary nickel will continue, and refined nickel prices are likely to rise but never fall.