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In 2023, the emergence of the conversion of Class-2 material to Class-1 material, notably nickel sulfate into nickel cathode, prompted some of the biggest participants in the Chinese nickel market such as Tsingshan Group, Huayou Cobalt, Jingmen GEM and CNGR New Energy Science & Technology to start producing their own nickel cathode.
The rise in capacity-building in both China and Indonesia quickly turned a refined nickel market once in short-supply into an oversupplied one, not only in China, but also globally, crashing nickel prices on both the London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE).
The LME’s benchmark 3-month nickel future price closed at $16,429 per tonne at the exchange’s 5pm close on Wednesday January 10, compared with $27,466 per tonne on the same day in 2023, a 40.18% slump.The SHFE’s most-traded nickel contract closed at 124,920 yuan per tonne on Wednesday January 10, compared with 206,020 yuan per tonne on the same day of 2023, down by 39.37%.
The move also led to greater diversity in the origin of nickel cathode in the LME warehousing system and reduced China’s reliance on overseas refined nickel.The global nickel market recorded its 18th consecutive monthly surplus in October according to the International Nickel Study Group, recording a cumulative surplus of 193,200 tonnes in the first ten months of 2023. Fastmarkets analysts, meanwhile, have forecast the market to record a further annual surplus of 170,000 tonnes in 2024.
The impact of the oversupply will continue to be felt in 2024, sources said.
Nickel was the worst performer among the base metal complex on LME and SHFE in 2023, losing more than 40% of its value on both exchanges. With bearish sentiment continuing to dominate the Class-1 nickel market, market participants, however, expect the downward move in 2024 to look “more modest” than that in 2023.
Growing supply was the main driver behind the downtrend in 2023, because there were roughly 10,000 tonnes of nickel cathodes added into China’s existing capacity, according to industry sources polled by Fastmarkets.
However, due to the current nickel price being too low to be profitable for producers, market participants expect the ramp up of domestic refining capacity in 2024 to be much slower than that of 2023, sources said.
“Currently we only see a sparse number of unfinished cathode-making plants in China,” a nickel trader based in Shanghai said. “And, considering the weakness in nickel prices, we don’t expect all of these plants, including those plants put into use in 2023, to operate at full capacity in 2024, making 2024 refined nickel surplus look moderate.”
The slower pace of nickel-related investment is also expected in Indonesia, according to market participants.“From a fundamental standpoint, while we forecast a surplus in the nickel market for 2024, it is expected to be less pronounced than the surplus in 2023. This represents a positive development in terms of the rate of change,” Fastmarkets analyst Boris Mikanikrezai said.
Market participants now expect long-term supply contracts to progress slowly for 2024, with some acknowledging the possibility of no long-term contracts being done for the year.
In 2023, new entrants in Chinese cathode-making industry, especially Huayou, started stepping up their export efforts while they sought to secure revenue from the overseas market, evident in the growing volume of Chinese refined nickel export volumes, declining nickel bonded stocks and growing China-origin nickel stocks in the LME warehousing system.
Market participants believe such efforts will be extended into 2024 because demand in China’s domestic market is not big enough to digest all the newly added cathode output, and they are trying to secure stable export through long-term contracts.
New nickel cathodes producers are all looking at chances to supply both the domestic and overseas markets with annual contracts. Yet they are currently struggling to reach one, sources said.
“There’re just too many choices in the spot market,” a nickel trader based in Shanghai said. “So why rush to lock in long-term supply at the moment?”
It is the same story for Russian suppliers, who are also in annual talks that are leading nowhere at the moment with buyers in Chinese import market, a market they used to dominate.
“[Chinese and Russian sides] stayed in touch with each other, and they negotiated a little bit in late October and then the talks were paused,” a trader with knowledge of the annual talks said.
“They haven’t reached anything about premiums or even volume yet, because they cannot reach consensus on issues such as payment terms, etc,.” the trader added.
In 2023, annual talks between Chinese and Russian market participants came to a standstill when Chinese buyers wanted to stop using the LME nickel price as the underlying basis for pricing of the annual contracts. Consequently, Russian market participants accepted the partial use of SHFE nickel prices in long-term supply, annual contracts for that year were signed in March and April, sources said.Volumes of nickel cathodes China imported from Russia continually fell since June after reaching a peak volume of 7,026 tonnes in May, under pressure from elevated competition from Chinese suppliers.The total volume of imported Russian cathodes to China for the first 11 months of 2023 was down by 9.29% year on year, dropping to 35,174 tonnes from 38,777 tonnes in the same period of 2022.
Meanwhile, other nickel products, especially nickel pig iron (NPI), have also been facing persistent pressure from oversupplied market conditions, sources said.
Fastmarkets’ weekly price assessment of nickel pig iron, high-grade NPI content 10-15%, spot, ddp China was 925-940 yuan per nickel unit on December 29, the last pricing day of 2023. This was a 32.43% drop compared with 1,370-1,390 yuan per nickel unit on January 6 2023, in the first pricing session of that year.Fastmarkets’ weekly price assessment of nickel pig iron, high-grade NPI content 10-15%, contract, ddp China was 920-930 yuan per nickel unit on December 29, a 33.21% slump compared with 1,380-1,390 yuan per nickel unit on January 6 2023.Going into the new year, with the new projects in the pipeline for 2024 in Indonesia, the main supplier of the stainless steel raw materials to China, the pressure will continue throughout the year, according to sources.
“We foresee the NPI surplus at some 200,000 tonnes for China in 2024,” an NPI trader based in Shanghai said. “That’s a huge number, and there’s just no major uptick in stainless steel production in the market to digest this surplus.”
Though a rebound of NPI price was seen at the end of 2023, supported by the destocking of NPI inventories held by traders and increased demand from stainless steel mills for the feedstock, any upside in NPI prices will be capped by the huge surplus, participants said.
Despite the bearish outlook, the downside of NPI price will also be limited by the NPI input cost, with prices of nickel ore, the NPI feedstock, relatively stable for in recent weeks in both Indonesia and China, sources said.“Though [it’s unlikely] NPI prices will return to what they were at the end of 2022, it will also be very hard for NPI prices to tumble below 900 yuan per nickel unit, [because that is] basically equivalent to input costs for many Indonesian NPI producers” a NPI buyer source said.
Nickel ore prices have also been largely stable in recent weeks.
Fastmarkets’ weekly price assessment of nickel ore 1.8% basis 15-20% Fe water content: 30-35% Si:Mg ratio<2 lot size 50,000 tonnes, cif China was $78-80 per tonne, unchanged week on week, and stable for six consecutive weeks.Fastmarkets’ weekly price assessment of laterite ore with 1.5% Ni content, cif China was $40-42 per tonne, also unchanged week on week.
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