Nickel briquette liquidity rises in China amid demand boom
Nickel briquette – a key feedstock for nickel sulfate and stainless steelmaking – has been extensively used by downstream consumers in China this year against a backdrop of healthy demand growth in the domestic electric vehicle (EV) and stainless steel sectors.
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.
To better monitor the development of EV market in China, Fastmarkets MB is planning to launch a cif Shanghai duty-free nickel briquette premium to complement the successful launch of its yuan-denominated nickel sulfate price assessment in July.
The proposal to launch the new assessment comes ahead of an expected boom in nickel demand from the EV battery sector, with demand for the material for use in EV batteries projected to surge fivefold over the next six to seven years, according to Fastmarkets MB head of base metals and battery research William Adams.
The duty-free nickel briquette long-term contract settled between battery makers and duty-free briquette producers was at around $120-160 per tonne in the first half year, before rising to $180-200 per tonne in the second half while the market shifts toward more nickel-weighted batteries, such as the NCM 811 – a cathode composition of 80% nickel, 10% cobalt and 10% manganese.
“We used to rely on purchasing nickel sulfate from sulfate producers, like Jinchuan. But we’re expanding capacity so we need to produce our own nickel sulfate via nickel briquette dissolution facilities,” a procurer from a major battery plant in China said.
“It took us quite some time to procure and then install the full set of nickel briquette dissolution facilities, and it wasn’t until the middle of the year that we got it done and our operations started. This is also the case for many of our peers, that’s why the premium for briquette in second half year was higher,” he added.
In addition to the project surge in nickel demand from the EV sector, China’s growing stainless steel output is also expected to contribute to the rising usage of nickel briquette in the country. Chinese stainless steel output rose by 4.1% year on year in January-August 2018 to 17.35 million tonnes, according to Chinese information provider Antaike.
At the beginning of this year, China raised its import tax on melting refined nickel to 2%, though nickel briquette imported from Australia and Madagascar remain duty-free under Free Trade Zone agreements.
“The tax increase has cemented the competiveness of duty-free briquettes in terms of price, so it’s not surprising to see it being more widely used this year,” a Shanghai-based trader said.
In China’s domestic market, duty-free nickel briquette is currently trading at a discount of around 500 yuan ($72) per tonne against the most-traded nickel contract on the Wuxi Stainless Steel Exchange, while Norilsk nickel full-plate cathode, which is subject to the 2% import tax, is trading at a premium of 200 yuan per tonne, according to traders. Therefore briquette is approximately 700 yuan per tonne cheaper than Norilsk full-plate cathode.
Meanwhile, the London Metal Exchange has already approved nickel briquette for physical delivery against its futures contract, with the Wuxi Stainless Steel Exchange following suit in initiating a public consultation late in May to add it for physical delivery, which is also expected to increase nickel briquette liquidity in China.
The Shanghai Futures Exchange is also said to be investigating the feasibility of approving nickel briquette for physical delivery against its futures contracts amid dwindling global stock levels, according to market participants.
Available nickel stocks on both the LME and SHFE have been on a downward trajectory since the beginning of the year, with market participants disputing the cause of the decline as either the result of real demand or the material is being used for financing activities and thus has become “invisible”.
SHFE deliverable nickel stocks stood at 16,204 tonnes as of October 12, plummeting by 67% from 48,920 tonnes on January 5. Similarly, LME nickel stocks stood at 219,924 tonnes on Thursday October 18, down 40% from 366,612 tonnes on January 2 – the first trading day of the year.