In March 2017, the China National Economic Research Institute’s (CNER) Business Sentiment Index for the nonferrous metals industry stood at 34.9, down 0.3 points from the previous month, yet continuing its steady trend within the “normal” range. The Leading Indicator for the nonferrous metals industry, also compiled by CNER, reached 93.1, up 0.4 points from the previous month; the Coincident Indicator came in at 86.1, rising 0.1 point from the previous month. Preliminary assessments suggest that the nonferrous metals industry’s business sentiment index will likely remain on an upward trajectory within the “normal” range in the near term; however, the foundation for the sustained recovery of economic performance among nonferrous metals enterprises remains fragile.

　　In the first quarter of 2017, nickel prices exhibited a low-level, volatile trend. Upstream mining policies in the Philippines and Indonesia—characterized by frequent changes—disrupted the market, while downstream stainless steel consumption in China remained sluggish, prompting some steel mills to express strong intentions to cut production. In the first quarter of 2017, the average three-month LME nickel futures price was USD 10,320 per ton, up 21% year-on-year. As of the end of March, LME nickel inventories stood at 377,000 tons, down 55,000 tons from the same period last year but up 7,122 tons compared to the end of 2016. Given the currently high inventory levels, the nickel market will still need to further advance the process of destocking this year.

　　In the first quarter, Shanghai nickel performed weaker than London nickel, ending its streak of three consecutive quarters of gains. The average spot price of nickel for the quarter was 86,155 yuan per ton, up 27% year-on-year. As of the end of March, Shanghai nickel inventories stood at 83,481 tons, a decrease of 7,580 tons from the end of December last year.

　　Investment in nickel and cobalt mining, beneficiation, and smelting declined year-on-year.

　　From January to February 2017, China had 8 construction projects in the nickel and cobalt mining and beneficiation industry, with a total investment of 48.97 million yuan—an increase of 138.3% year-on-year. There were 16 construction projects for nickel and cobalt smelting, with a total investment of 330 million yuan, representing a year-on-year decrease of 79.56%. Although domestic investments in nickel smelting projects have declined, there has been a steady stream of news about newly built nickel-iron and stainless steel projects being put into operation in Indonesia. The three-phase nickel-iron project of QingShan Group, located in an industrial park in Indonesia (with a total capacity of 150,000 tons of nickel), has now fully come on stream. Projects invested in by companies such as Xinxing Cast Pipe and Jiangsu Delong are also gradually entering production.

　　In the first quarter, China's primary nickel production increased by 19% year-on-year.

　　In the first quarter of 2017, China's primary nickel production totaled 155,000 tons, an increase of 19% year-on-year. Among this total, NPI production reached 101,000 tons, electrolytic nickel production was 37,000 tons, general nickel production stood at 10,300 tons, and nickel salt production amounted to 7,300 tons.

　　In the first quarter, China’s electrolytic nickel production totaled 37,000 tons, a year-on-year decrease of 9.7%. Among this, Jinchuan Group’s output was 29,000 tons, down 19% from the previous year. Jinchuan Group’s 2017 production is forecast at 120,000 tons, primarily due to difficulties in procuring raw materials from external sources. It is expected that China’s electrolytic nickel production will continue to decline in 2017, reaching around 150,000 tons.

　　In the first quarter, China’s ferronickel production reached 101,000 tons, an increase of 34.7% year-on-year. Although ferronickel plants are currently operating at a loss, thanks to last year’s relatively strong profitability and considering factors such as maintaining relationships with steel mills and the costs associated with shutting down and restarting operations, domestic ferronickel production is unlikely to decline significantly for the time being. Moreover, in March, domestic ferronickel prices were severely inverted relative to nickel plate prices; as a result, some ferronickel companies continued to choose adding nickel plates or nickel hydroxide to produce ferronickel. This is also a key reason why the metal content of ferronickel has not shown any significant decline.

　　The global nickel market’s supply-demand gap is narrowing.

　　According to the latest data from the International Nickel Study Group (INSG), in January 2017, global primary nickel supply totaled 169,000 tons, while consumption reached 170,000 tons, resulting in a supply shortage of 1,000 tons. The supply-demand gap has narrowed significantly.

　　In January 2017, global primary nickel production reached 169,000 tons, an increase of 6.6% year-on-year. Among these, production in Africa was 7,700 tons, up 11.2% year-on-year; in Europe, production stood at 32,100 tons, down 15.2% year-on-year; in Asia, production totaled 89,200 tons, up 28.3% year-on-year; and in Oceania, production reached 18,400 tons, up 2.2% year-on-year.

　　Looking at individual countries, Indonesia saw a significant increase in absolute production: its primary nickel output in January reached 16,500 tons, an increase of 202%. Following Indonesia's mining ban in 2014, Chinese-funded enterprises, after two years of investment and construction, have markedly accelerated their production ramp-up, leading to a substantial release of NPI capacity. On the other hand, Russia experienced a notable decline in production: its primary nickel output in January was 10,900 tons, down 40.1% year-on-year. It is expected that Russia’s annual nickel production will decrease by 30,000 tons compared to the previous year.

　　In January 2017, global nickel consumption reached 170,100 tons, representing a year-on-year increase of 9.1%. In Asia, consumption rose by 11.7% to 122,500 tons, while in the Americas, it increased by 10.8% to 15,400 tons year-on-year.

　　The International Stainless Steel Forum (ISSF) recently announced that global stainless steel production in 2016 reached 44.9 million tons, representing a year-on-year increase of 10.2%. All regions except Central and Eastern Europe recorded growth. Preliminary statistics show that China produced 24.94 million tons, up 15.7% from the previous year; Asia (excluding China) produced 9.08 million tons, an increase of 4.8%; Western Europe and Africa produced 7.70 million tons, up 2.4%; and the Americas produced 2.93 million tons, up 6.7%.

　　Global stainless steel production in 2017 is expected to reach 46.2 million tons, an increase of 2.9% over the previous year, marking a significant slowdown in growth rate.

　　Nickel ore imports are diversifying.

　　According to customs statistics, China’s imports of nickel ore from the Philippines in 2016 fell by 10.95% year-on-year. However, this decline was less severe than the 20% drop initially forecast by the Philippine government at the beginning of last year. From January to February of this year, China’s cumulative imports of nickel ore and concentrates totaled approximately 2.176 million tons, an increase of 13.8% over the same period last year. Among these, imports of nickel ore from the Philippines amounted to about 1.5 million tons (accounting for 89.6%, down from the previous year), representing a year-on-year decrease of 0.5%. From January to February this year, China also imported 298,000 tons of nickel ore from Indonesia—a figure that reached its highest level since November 2014, partially offsetting the shortfall caused by the decline in Philippine nickel ore supplies. Additionally, from January to February, China imported roughly 310,000 tons of nickel ore from Guatemala, New Caledonia, and Turkey. Currently, China’s nickel ore imports are diversifying, with regions such as Indonesia, New Caledonia, and Guatemala stepping in to compensate for the declining supply from the Philippines.

　　In 2016, China’s imports of unwrought nickel continued to grow, although the growth rate slowed down compared to 2015. In 2016, China’s cumulative imports totaled 363,000 tons, an increase of 24% year-on-year. Among these, imports of Russian nickel reached 228,000 tons, up 17% over the previous year. From January to February 2017, imports of refined nickel and nickel alloys amounted to 28,100 tons, a sharp decrease of 55.6% year-on-year. Of this total, imports from Russia were 12,900 tons, down 70.7% year-on-year. The decline in Russian electrolytic nickel supply partially offset the downward pressure exerted by the increase in China’s production of nickel pig iron. Given the reduced demand from state reserves and exchange deliveries, it is expected that electrolytic nickel imports will decline somewhat in 2017.

　　Due to Indonesia’s ban on the export of raw laterite nickel ore, nickel companies have accelerated their pace of investing in and building ferronickel plants in Indonesia. In recent years, Tsingshan Group’s ferronickel projects in Indonesia have successfully gone into operation, not only supplying large quantities of high-nickel ferronickel to China but also boosting domestic enterprises’ willingness and speed to invest in and set up facilities in Indonesia. Consequently, one of the main reasons for the weak performance of nickel prices lies in market concerns over Indonesia’s newly added ferronickel production capacity. As evidenced by the steadily rising imports of ferronickel from Indonesia, since 2015, the volume of ferronickel imports has continued to climb, partially offsetting the decline in domestic ferronickel production and nickel ore imports. In January-February 2017, China’s ferronickel imports totaled 218,000 tons, an increase of 76.3% year-on-year. Among these imports, those from Indonesia reached as much as 151,000 tons, a sharp year-on-year rise, accounting for 69% of total imports and further solidifying Indonesia’s position as China’s largest supplier of ferronickel.

　　Inventories of various nickel materials have declined from their highs.

　　LME nickel inventories have consistently remained at a high level above 400,000 tons. In 2016, inventories declined month by month and are now stable around 380,000 tons. Among these, nickel plates account for 136,000 tons, a decrease of 100,000 tons from the beginning of 2016, representing 35%; nickel pellets and nickel briquettes total 247,000 tons, an increase of 90,000 tons from the beginning of 2016, accounting for 65%. Chinese stainless steel mills tend to prefer using nickel plates; although nickel pellets and nickel briquettes can also be used to produce stainless steel, they would increase management costs. However, domestic steelmakers are now gradually increasing their consumption of nickel pellets. Meanwhile, SHFE nickel inventories held by the Shanghai Futures Exchange rose from 40,000 tons at the beginning of 2016 to a peak of 110,000 tons in September, after which they began to decline and currently stand at around 80,000 tons.

　　In 2016, China's nickel plate inventory (including inventory in bonded zones) rose from approximately 190,000 tons at the beginning of the year to a peak of 250,000 tons in mid-year. Subsequently, it declined sharply to 200,000 tons by year-end. After entering 2017, inventory continued to fall. As of the end of March, domestic nickel plate inventory stood at about 170,000 tons, of which 60,000 tons were held in bonded zones. The Shanghai Futures Exchange inventory, combined with other inventories, totaled roughly 110,000 tons.

　　Against the backdrop of a year-on-year decline in imported nickel ore, domestic nickel companies have been forced to continue drawing down nickel ore inventories at ports, resulting in a sustained drop in these inventories and repeated new record lows. As of the end of March, nickel ore inventories at China’s major ports had fallen to 94.9 million tons, a decrease of 16.8 million tons from the end of February—a fifth consecutive monthly decline. Compared with the same period last year, inventories have fallen by 36.3 million tons, hitting yet another all-time low. Since the start of the first quarter, cumulative reductions in port nickel ore inventories have totaled 42.8 million tons, or 16.7%. Currently, inventories are 16.7 million tons lower—or 64%—than the historical peak of 261.3 million tons reached in February 2014.

　　Nickel prices are expected to be higher in the first half and lower in the second half.

　　Due to factors such as rising costs, from the current perspective, the probability of companies that have already ceased production quickly resuming operations is relatively low. As a result, the global nickel market will likely remain in a state of tight balance, and inventory destocking will continue. However, the pace of inventory destocking will become a key factor determining whether nickel prices can rebound. If the environmental review of mining operations in the Philippines leads to an escalation of shutdowns among nickel ore enterprises, nickel ore supply in 2017 could face a shortage, which would also push nickel prices higher. Nevertheless, the increase in nickel-iron production in Indonesia deserves close attention, as it may help offset the supply gap caused by mineral shortages at domestic nickel-iron producers.

　　In 2017, the downstream demand side lacked new bright spots. Real estate purchase restrictions continued, and growth rates in industries such as automobiles and home appliances were likely to slow down. As a result, the growth rate of end-demand is expected to moderate. Moreover, environmental inspections have now extended to the stainless steel industry, potentially leading to a reduction in stainless steel production in 2017 and thereby weakening the demand for nickel.

　　Global nickel consumption is pinned on the development of new-energy vehicles. Although the growth of new-energy vehicles can partially boost nickel demand, it still falls short of sustaining a significant rise in nickel prices.

　　Nickel prices in 2017 are expected to follow a pattern of higher in the first half and lower in the second half. In the first half, driven by factors such as tight nickel ore supply and strong downstream demand, nickel prices will continue to rise. However, as supply gradually recovers in the second half, the upward momentum for nickel prices will weaken. In 2017, LME nickel prices are forecast to fluctuate between US$9,000 and US$13,000 per ton, with an average price of US$9,900 per ton. Domestic prices will also track the trend of international nickel prices, averaging around RMB 80,000 per ton.