Caixin News, September 13th (Reporter: Liang Xiangcai) - "Buy more as it falls below 120,000!" After nickel prices fell sharply, some traders excitedly told Caixin reporters.

However, the time for the market to remain at the low price of 120,000 yuan per ton is limited. After Russia indicated considering restricting nickel exports, the London nickel and Shanghai nickel both rose after touching recent lows.

Caixin reporters learned from multiple interviews that the global high-cost nickel production capacity is gradually being cleared. With factors such as slowing oversupply and nickel prices falling to the cost line of low-cost mines in Indonesia, there is limited downside potential for future nickel prices, ushering in a phase of bottoming out.

Photo taken by Caixin News of a stainless steel production workshop containing nickel in Foshan.

Russia Considering Export Restrictions, Traders Stocking Up at Low Prices

Nickel prices have been on the decline overall this year. In the night session on September 11th, the main Shanghai nickel briefly fell below 120,000 yuan per ton, reaching a nearly 4-year low range.

"Basically all stocked up", "On the day it fell below 120,000, we also bought tens of tons of nickel", after nickel prices fell sharply, several traders told Caixin reporters that it had dropped to the bottom range in their minds.

Industry insiders told Caixin reporters that the current domestic nickel price is closely tied to the Indonesian market. The estimated cost of Indonesian nickel in the industry is around $0.015 million per ton, which, after adding relevant import taxes and fees, falls within the range of approximately RMB 0.12 million per ton in China.

Of note, on September 11th, according to TASS, Russian President Putin expressed the hope that the possibility of restricting the export of several non-ferrous metal raw materials, including nickel, will be considered by relevant government ministers, as long as it does not harm Russia's interests. As a result, the LME nickel main contract rose 2.5% on the same day, and the SHFE nickel main contract also rose, surpassing 3% at one point during the session.

In response to this, Li Qiang, Executive Chairman of the Hainan Stainless Steel Industry Association and Executive Chairman of the Foshan Metal Materials Industry Association, told Caixin reporters that during the more than two years of the Russia-Ukraine conflict, a significant amount of military products containing nickel were consumed, and there has not been a significant increase in nickel mining in the area. This has led to an increasingly tight supply of this strategic resource in Russia.

"In the short term, the nickel industry and prices are mainly influenced by news, and do not have sustained support or driving effects. If there are policy adjustments in the future, the impact on the supply in the Chinese market will be limited." Bai Qiong, a nickel analyst at the New Energy Business Unit of Shanghai Ganglian E-commerce Holdings, said that Russian mining giant Norilsk plans to produce 0.18 million-0.19 million metric tons of nickel metal this year, with exports exceeding 0.1 million metric tons. A complete ban in the short term would have a huge impact on the industry and violate the premise of "not harming one's own interests."

Wang Yanqing, Senior Research Analyst of Nonferrous Metals at China Securities Co., Ltd. Futures, told Caixin reporters that from January to July 2024, China's refined nickel production and import totaling 0.2284 million metric tons, with Russian nickel imports accounting for 0.0167 million metric tons, or 7.3% of the total. If Russia were to implement restrictions on nickel exports, it could have an impact on the supply and demand balance of the nickel market in China to some extent.

Clearing of high-cost capacity

The depressed nickel price may cause changes to the industry's planned production capacity.

An employee of Chengtun Mining Group (600711.SH) told reporters, in an investor capacity, that its Shengmai Nickel project in Indonesia has not yet started construction, and the company is reassessing it based on actual conditions.

According to public information, the annual production of nickel metal in Shengmai Nickel Industry in Indonesia is 0.04 million tons. The high nickel project, which was previously expected to start production in 2024, is still in the process of obtaining land use rights as of the first half of 2024.

Some industry insiders have told Cailian Press reporters that in addition to the mines under construction, the previous mining expectations for some smaller nickel mines in Indonesia have been disrupted mainly due to local policy restrictions and severe profit decline.

High-cost nickel production capacity is gradually being eliminated. Wang Yanqing said that since this year, high-cost nickel production capacity in the West has been reduced to varying degrees, mainly concentrated in areas such as Australia and New Caledonia.

In February of this year, Jinchuan Group announced that it would sell its stake in the KNS nickel processing plant in New Caledonia, and the KNS nickel processing plant would suspend production for six months. In the same month, BHP announced that due to a significant drop in nickel prices, it was considering closing its nickel business in Western Australia and would re-evaluate this decision until early 2027.

In June, German chemical giant BASF announced its plan to terminate the construction of its nickel-cobalt refining plant project in Indonesia, which involves a nickel production capacity of 0.067 million tons/year.

Bai Qiong stated that from a cost perspective, the cash cost level of the Indonesian pyrometallurgical project is generally around 0.014 million USD/ton, and the nickel price has not yet reached the stage of widespread clearance.

The downward space of nickel price is limited and may usher in a phased bottoming out.

Li Qiang stated that based on his recent visits, stainless steel processing plants, dealers, and store inventories are generally low. In this situation, the market will show a tendency to buy when the price rises. Overall, the reasonable fluctuation range for nickel price is between 0.015 million-0.018 million USD.

Caixin journalists learned from an investor in Gem Co., Ltd. (002340.SZ) that nickel prices have experienced a significant decline in recent years. The company does not hope for large fluctuations in nickel prices. A stable price is beneficial for the healthy operation of the industry chain, and the possibility of a sharp decline in nickel prices in the future is small.

Bai Qiong told journalists that the current nickel price is not at its lowest, but the downward space for nickel prices in the next two years is narrowing. Based on the current disclosed investment and construction project situation, the center of gravity for nickel prices in the next three years will further decrease, suppressing supply growth and restoring industrial balance. After 2027, with the promotion of new energy consumption, the nickel industry may shift from surplus to deficit. It is expected that the average annual price of nickel will bottom out around 2027 and then drive the recovery of the nickel industry and the upward trend of nickel prices with demand growth.

According to institutional data statistics, nickel raw materials account for 60%-65% of the cost of stainless steel. In recent years, stainless steel has accounted for about 60% of nickel consumption in China, and batteries are the second largest area of nickel use, accounting for about 20%.

Regarding future consumption of stainless steel, Li Qiang told journalists that this year's stainless steel demand is expected to decline compared to last year, but still maintain a growth rate of about 6%-8%.

In fact, the scale of global nickel supply surplus has been alleviated this year. The International Nickel Study Group (INSG) predicted in October last year that the nickel surplus in 2024 would reach 0.239 million tons, but this year revised this data down to 0.109 million tons. The organization also reported a global nickel market supply surplus of 0.163 million tons in 2023.

Minmetals Securities previously stated in a research report released in August that looking ahead, Indonesia's nickel ore grade has been continuously declining, and loss-making nickel mines may be closed. Taking into account the two main demand sectors of steel and batteries maintaining annual single-digit growth, it is expected that primary nickel will reach a balance in 2028-2029.