Mining Australia Commentary: Currently, nickel mines across Australia are closely monitoring the global nickel supply situation. As soon as the timing is right, we’ll see Australian nickel mines gradually resuming operations.

“Latest Global Nickel Supply Analysis and Future Market Outlook”

In September 2016, the China National Economic Research Institute’s (CNER) Business Sentiment Index for the nonferrous metals industry stood at 26.1, up 2.3 points from the previous month and moving to the upper boundary of the “slightly cold” range. The leading index for the nonferrous metals industry, also compiled by CNER, reached 81.2, an increase of 2.3 points over the previous month. The coincident index came in at 74.4, rising slightly by 2.1 points from the previous month. Preliminary assessment suggests that the nonferrous metals industry’s business sentiment index continues to rebound within the “slightly cold” range; however, downward pressure on enterprises’ economic performance remains significant.

A comparison with the constituent indicators of the nonferrous metals industry prosperity index reveals that in the third quarter of 2016, nickel prices mostly fluctuated between 73,000 and 82,000 yuan per ton. Prices in the third quarter were higher than those in the second quarter, consistent with the performance of the LMEX index. Throughout the third quarter, nickel prices continued to rise steadily, with a cumulative increase of over 10% for the quarter. This upward trend was largely driven by news of environmental inspections in the Philippine mining sector. Since late June, the new Philippine president and the newly appointed Minister of Environment and Natural Resources have been cracking down on mining operations that fail to meet environmental standards within the country. In July, reports of mine closures kept emerging, fueling growing market expectations of a tightening supply of nickel ore and sustaining the strong upward momentum of nickel prices.

[China’s Nickel Industry Performance] In the third quarter of 2016, the average LME nickel price was USD 10,310 per tonne, down 3% year-on-year but up 16% quarter-on-quarter. As of the end of September, LME nickel inventories stood at 362,000 tonnes, a decrease of nearly 17,000 tonnes from the end of the previous quarter. In the third quarter, the average price of the most active Shanghai nickel contract was RMB 80,752 per tonne, down 5% year-on-year but up 15% quarter-on-quarter. Spot prices in the third quarter also rose significantly, following the trend of futures prices.

[Investment in Nickel-Cobalt Mining and Smelting Declines Year-on-Year] From January to August 2016, China had 10 nickel-cobalt mining and beneficiation projects under construction, with an investment totaling 1.02 billion yuan, representing a year-on-year increase of 125.26%. There were 44 nickel-cobalt smelting projects under construction, with an investment of 5.31 billion yuan, marking a year-on-year decrease of 24.84%.

[China’s Primary Nickel Production Declines 2.5% Year-on-Year] In the third quarter of 2016, China’s primary nickel production—including nickel content in pig iron—was estimated at 153,000 tons, down 2.5% year-on-year but virtually unchanged from the previous quarter. Among these, electrolytic nickel production totaled 45,000 tons, general-purpose nickel production reached 8,000 tons, nickel salt production stood at 7,000 tons, and nickel-containing pig iron production amounted to 93,000 tons. For the first three quarters combined, China’s primary nickel production totaled 4.36 million tons, a decrease of 8.2% year-on-year. Full-year primary nickel production is forecasted to reach 5.8 million tons.  

[Supply Reduction and Rising Consumption: Nickel Market Fundamentals Improving] From January to July 2016, global nickel ore production totaled 1.1743 million tons, a year-on-year decrease of 6.5%. Nickel ore production across all five continents showed a year-on-year decline, indicating an overall contraction in supply. In Asia, nickel ore production reached 391,400 tons, down 11.3% year-on-year. With the exception of Indonesia, where production increased by 30.2%, output in other Asian countries generally declined. Among major nickel-exporting countries, the Philippines saw its production drop by 24.4% year-on-year to 215,900 tons. Production declines in Europe, Africa, the Americas, and Oceania were 8.2%, 6.9%, 2.2%, and 1.9%, respectively, reflecting a comprehensive reduction in supply.

From January to July 2016, global primary nickel production totaled 1.129 million tons, a decrease of 2.6% year-on-year. Among these, while production in the Americas increased by 1.6% year-on-year, production in Africa, Asia, Europe, and Oceania all declined, with decreases of 8.5%, 1.6%, 7%, and 0.7%, respectively. From January to July 2016, global nickel consumption reached 1.1715 million tons, up 6% year-on-year. By region, with the exception of Australia, all other major consuming regions recorded year-on-year growth in consumption. The Asia region, which accounted for the largest share of consumption, consumed 834,400 tons from January to July, an increase of 6.4% year-on-year. Among them, China led both in absolute consumption volume and growth rate: from January to July, China’s nickel consumption reached 617,400 tons, up 8.1% year-on-year.  

[Imports of nickel ore declined, while imports of electrolytic nickel increased] According to customs statistics, China imported a total of 7.56 million tons of nickel ore in July and August. The third-quarter import volume is expected to reach 12 million tons, a year-on-year decrease of 7.7%. Most of this nickel ore came from laterite nickel deposits in the Philippines. In July and August, China's imports of electrolytic nickel totaled 57,000 tons, with an estimated third-quarter import volume of 80,000 tons. In the first eight months, cumulative imports of electrolytic nickel reached 287,000 tons, representing a year-on-year increase of 69.8%. Of this total, imports from Russia amounted to 191,000 tons, from Canada 25,000 tons, from Norway 17,200 tons, and from South Africa 13,800 tons. Since April and May, China’s imports of electrolytic nickel have been experiencing substantial losses, a situation that has persisted into the third quarter. On average, the loss per ton has been around 3,000 yuan, with the highest losses exceeding 6,000 yuan per ton. Such prolonged and significant losses have dampened market enthusiasm for importing electrolytic nickel and reduced demand for financing nickel. Following a peak in April, imports of electrolytic nickel have gradually declined.

Affected by the decline in domestic production of nickel-containing pig iron and the smooth commissioning of the QingShan Indonesia project, China’s imports of nickel pig iron have surged since 2016. From January to August, China’s cumulative imports of nickel pig iron reached 634,000 tons, an increase of 46.3% year-on-year. The imported nickel pig iron, converted into metal content, totaled 96,900 tons, up 13,000 tons from the 95,600 tons of metal content recorded during the same period last year—a growth rate of only 1.4%. By importing country, China imported 450,900 tons from Indonesia, 65,600 tons from New Caledonia, 40,700 tons from Colombia, and 36,400 tons from Brazil.

[The pace of destocking various nickel materials is accelerating] In the third quarter of 2016, LME nickel inventories fell by 17,000 tons to around 3.62 million tons. Domestic electrolytic nickel inventories, as statistically recorded, stood at approximately 230,000 tons, a decrease of nearly 30,000 tons compared to the second quarter. Due to prolonged and substantial price losses on nickel imports into China, import enthusiasm has waned, prompting a move to deplete domestic electrolytic nickel inventories. Additionally, as 2016 marked the first supply-demand gap in nearly five years, with both nickel ore and NPI inventories remaining at low levels, global visible nickel plate inventories have begun to decline.

In the third quarter, domestic NPI production declined due to environmental regulations. Although the actual metal content of imported nickel-iron increased slightly year-on-year, domestic stainless steel production—particularly that of 300-series stainless steel—decreased only marginally during the same period. Major state-owned steel mills adjusted their product mix, increasing the supply of 300-series stainless steel. As a result, domestic NPI inventories continued to decline, with inventory consumption rising notably in August. As of the end of the third quarter, domestic NPI inventories stood at 120,000 tons, down 30,000 tons from the end of the second quarter.

As of the end of the third quarter, domestic port inventories of nickel ore stood at 15.38 million tons, an increase of 2.28 million tons from the end of the second quarter. The third quarter marked the peak period for restocking at domestic ports. This year, affected by tighter supply from Philippine mines, nickel ore prices saw a relatively significant rise. As a result, Philippine miners became more active in shipping their products, which in turn boosted the enthusiasm of domestic traders. Consequently, import volumes in August not only failed to decline but actually rose. However, due to the lower grade of imported nickel ore, the actual metal content of nickel ore held at ports was lower than in the same period last year.  

[Market Outlook] Currently, the tightening of nickel supply from the Philippines continues to draw close attention. The resumption of production at domestic steel mills—particularly those in the East China region—will continue to boost demand for nickel. Additionally, factors such as stainless steel mills rebuilding their inventories and the Chinese National Reserve Bureau’s procurement and storage of refined nickel will provide support for nickel prices.

Starting September 21, the Ministry of Transport launched its strictest-ever crackdown on overloading and over-dimensional vehicles. As a result, the costs of stainless steel raw materials and stainless steel transportation have risen, leading to higher production costs for enterprises and providing some support to market conditions.

Currently, the total inventory across the LME and SHFE markets has dropped from 510,000 tons to 470,000 tons. With domestic nickel ore and NPI inventories nearing the end of their destocking phase, the decline in electrolytic nickel inventories is a positive signal indicating an improving industry fundamentals.

— Xu Aidong, Fan Runze, China Nonferrous Metals News