SHFE approves delivery of nickel briquettes amid fast-growing EV market

Nickel briquettes will be allowed for delivery on the Shanghai Futures Exchange from October 16 for contracts for November delivery onwards, the Exchange announced on Friday May 8.

The announcement, however, did not specify designated delivery warehouses or the rate of premium and discount applied to delivery warehouses at different locations, and will be separately specified and announced by the bourse.

The move aims to meet rising demand for other forms of nickel amid the rapid development of the electric vehicle (EV) market in China, according to SHFE’s Q&A to the addition of nickel briquettes seen by Fastmarkets.

“Market participants widely support the move as the use and liquidity of nickel briquettes in China is increasing notably with the rapidly-growing EV market,” one official explained in the Q&A.

“As a key raw material for EV batteries, nickel briquettes represent the direction of the industry’s future demand growth,” the official added.

A couple of years ago, the market had started to talk about SHFE’s possible move to allow the delivery of nickel briquettes against its futures contracts because limited supplies of nickel in the form of plate-shaped cathodes tend to increase price volatility.

London Metal Exchange opening stocks of nickel totaled at 233,304 tonnes on May 6, with nickel full-plate cathodes accounting for 20,376 tonnes or 8.7% of the total, and nickel bagged briquettes 207,642 tonnes, or 89%.

“The addition of nickel briquettes [to the SHFE] will allow more nickel resources to be deliverable on the SHFE, [and] this will reduce price risk to some extent,” a Shanghai-based nickel analyst said.

“But China’s EV sector is not as strong as in past years and [the Covid-19] outbreak is also hurting the market, [so] more attention should be also paid to demand side – including from the stainless steel sector, another major consumer of briquettes” the analyst added.

The output of EVs in China tumbled by 60.2% and sales by 56.4% year on year in the first quarter of 2020, according to data released by the China Association of Automobile Manufacturers (CAAM).

“It’s still months away from its introduction, but we see this as a positive factor for [the cif] duty-free briquette premium amid growing liquidity and a positive for demand outlook,” a second major Shanghai-based nickel trader said.

“I think the arbitrage opportunity also plays a very important role, and if the arb is good, the [import] interest will grow,” a third Shanghai nickel trader added. 

Duty-free nickel briquette – typically imported from Madagascar and Australia – is the most commonly accepted type of this material in China and enjoys the most liquidity in the country.

Fastmarkets assessed the cif Shanghai duty-free nickel briquette premium at $110-150 per tonne on April 28, amid a muted trading sentiment.

At present, the London Metal Exchange already allows physical delivery of nickel briquettes, in addition to cathodes and pellets, and the Wuxi Stainless Steel Exchange in East China’s Jiangsu province added briquettes to its deliverable list after a public consultation in May 2018.