Chinese nickel market sees a bullish trend in H2 2021

Asian Metal: Thank you for accepting the interview from Asian Metal. Could you please give us a brief introduction to your company, Mr. Lai?

Mr. Lai: Our Linengjian Group has a number of trading entities, among which Hangzhou Xinmao Metal Materials Co., Ltd. was established in 2005. For many years, we have been focusing on trading of non-ferrous metal products, mainly including copper, nickel, aluminum, lead, zinc, tin, etc., supplemented with minor metal products such as silicon, manganese, chromium and antimony. We are currently a well-known enterprise in Hangzhou as we aim at serving the market with high-quality and low-cost products. The nickel trade volume accounts for around 30% of the company's total trade volume now, and the company's total turnover is expected to exceed RMB300 million (USD46.32 million) in 2021.

Asian Metal: Could you tell us your upstream and downstream customers?

Mr Lai: Our company mainly deals in non-ferrous metals and minor metal products. Downstream customers are mainly traders and producers engaged in alloys, casting, electroplating, hardware and steel, who mainly come from the surrounding areas of Jiangsu, Zhejiang, Jiangxi and Anhui. We, as a service provider in tertiary industry, serve for a broad group of industrial customers. At present, we provide metal trading services for industrial customers in more than 10 provinces and cities across the country, mainly in East China, radiating across the country.

Asian Metal: What do you think are the advantages of East China as a major trading area?

Mr. Lai: The consumption boom of nickel cathode in East China originated in the 1990s. China was once a nickel-poor country until the discovery of a large amount of nickel-cobalt associated ores in Jinchang, Gansu in the 1970s, and then a world-class nickel smelting enterprise - Jinchuan Group - was born immediately. At that time, very few companies were engaged in nickel cathode trading, and even fewer in East China. The total trade volume was small, and the material was in short supply, so the sales profits were relatively high. With more and more companies engaged in nickel trading, East China has become one of the main gathering places for nickel cathode traders in the country, and it is also China's largest nickel cathode consumption area. In East China, the supply network based on Jiangsu, Zhejiang and Shanghai covers most provinces and cities across the country. Jiangsu, Zhejiang and Shanghai have formed the main trading clusters for nickel cathode, which benefits from the developed transportation network and the advantages of supporting industrial clusters. Moreover, it has another three advantages. First of all, the investment environment in East China is relatively loose and open, with superior business environment covering both competition and integration. Secondly, the local government has an orderly guidance for industry growth and its industrial policies have strong driving force, resulting in a good structural layout. Thirdly, it is close to the financial center of Shanghai and easy to trade as the futures exchange is near the delivery warehouse.

Asian Metal: Please illustrate the current supply and sales in East China, the major trading cluster of nickel cathode.

Mr. Lai: As far as we know, the annual consumption volume of nickel cathode in East China accounts for around 60% of the total in China. There are more than 200 nickel cathode consumers in East China, accounting for about 60% of the country. The number of traders exceeds 100, accounting for half of the country.

Asian Metal: Could you describe the important stages in respect of the big changes in nickel cathode consumption since you have been in the business for so many years?

Mr. Lai: The big changes can be divided into three stages. The first stage is 2005-2008, during which the nickel cathode experienced a consumption bull market. China was growing into a world-class manufacturing country during the period when the consumption of electroplating, alloys and special steel show explosive growth. The nickel cathode market was extremely prosperous at then, and many traders of nickel cathode emerged. In the later period, market deals have been very active and the market price of nickel cathode stayed at around RMB440,000 (USD67,938). The second stage is the 2011-2016 bear market, which is a turning point for price and demand of nickel cathode. Due to the breakthrough in nickel smelting technology, a large amount of low-grade lateritic nickel ore was converted into nickel-containing pig iron, which was widely used by the stainless steel plants with the largest demand. The price of nickel cathode went down all the way from RMB219,000/t (USD33,814/t) in early 2011 and dropped to as low as RMB65,000/t (USD10,036/t) in 2016. After a long period of time, a disproportionate amount of nickel cathode in the stainless steel field was replaced, and the demand for nickel cathode began to decline. It entered a stock accumulation stage for a long period. The third stage refers to the period from 2020 till now. Affected by the epidemic in early 2020, coupled with the drastic changes in the international industrial chain, domestic consumption has quickly fallen into a trough. Market participants held a strong wait-and-see attitude and were cautious in trading, so prices continued to weaken. In Q2, when the epidemic in China was effectively controlled but that in other regions abroad again deteriorated, China's position as the world's largest and most comprehensive industrial manufacturing country became prominent. The nickel price thus rebounded following a V-shape from the bottom of RMB94,000/t (USD14,514/t). Till now, the market gradually enters the recovery process of the post-epidemic era. We believe that the consumption of nickel cathode would rise steadily given the demand in traditional fields and the emerging fields. With the destocking, the price of nickel is also expected to keep rising.

Asian Metal: In the post-epidemic era, are there any changes in the purchase strategies of downstream customers as you know?

Mr. Lai: A few years ago, most of the customers used to refill stocks in advance. Considering the production cycle and factors such as logistics, processing, and supply instability, most consumers usually held inventory ahead of schedual. At that time, the transaction price was still based on the price model of "regional price plus fixed markup". For example, Jinchuan Nickel’s unit sales price including Jinchuan's EXW price and profit of RMB500-1,000/t (USD77.20-154/t). The inventory coefficient of traders stayed relatively high, and the market trading was relatively active. Many customers held inventory for at least half a month. However by now, the competition brought about by the market economy has weeded out many companies with poor anti-risk capabilities, so the customers with large purchasing quantities and bargaining power survived. Most of them prefer to close spot deals with a reference of the futures price, purchasing on demand in batches. Because the market price fluctuates greatly, the profit of trading is uncertain. As a result, traders have to bear considerable risks. Meanwhile, downstream customers can not only tap the potential in the production area as in the past, but also in purchases. They require quick delivery, perfect service and lower price from suppliers. Under such fierce market competition, it has been a great challenge for traders in the past two years. As we can see, inventory is a double-edged sword and needs to be weighed again and again.

Asian Metal: Facing the ever-increasing competitive and fluctuating environment on the market, how do you see the future of nickel traders?

Mr. Lai: There is always a ceiling in the capacity of any market. From a short-term perspective, China’s downstream industrial products are currently over-produced, but with the control of the epidemic in other countries around the world, the excessive amount will disappear one day and the market demand will also weaken. In the past, traders mainly relied on information advantages to obtain transactions, and they could get profits by obtaining quick information. However, with the upgrading and progress of the manufacturing industry, the multi-dimensional development of information dissemination, and the definite integration and intensification of all industries in the future, nickel traders will be in an embarrassing situation in the future. Of course, with the emerge of new energy, traditional energy will gradually withdraw from the market after 2030, and thus industrial technology progress will also bring about brand-new changes. As an intermediate sector, nickel traders will not die out or develop indefinitely. This is like an ecosystem, whose existence consumes multiple resources. In respect of the quantity of nickel traders, I think the total amount may be reduced by 1/3, and traders will be concentrated in East China and South China in the future. The market will definitely select the superior traders and eliminate the inferiors.

Asian Metal: What can we do to maintain the healthy development of the nickel industry chain in your opinion?

Mr. Lai: We should focus on two key points to maintain healthy development of nickel industry chain. We should pay attention to technology upgrading on the one hand, since the improving technology will bring changes in market demand. For example, the power battery used cobalt as raw materials at the initial stage of R&D, but the proportion of nickel increases to no less than 50% by now, and even no cobalt is needed since the invention of cobalt-free batteries. Another example is the successful smelting of lateritic nickel ore in 2012, which pushed the consumption of nickel cathode to a trough. Therefore, we can not talk about the growth of nickel industry chain without focusing on the technology improvement. It was profitable at first but it entered a stage of intense competition in later period. We should keep an eye on the economic development on the other hand. China has entered the mid-to-late stages of industrialization, when nickel is the raw material for high-end consumption at this stage. The consumption amount will stay at high levels while that in stainless steel area will keep stable. What’s more, we should also watch the changes of the world, which will determine whether products made in China only serve the country itself or the whole world. If other countries enter the industrialization stage successively, then the consumption of nickel will increase further.

Asian Metal: Please give us your predication about the nickel price trend in H2 2021, Mr Lai.

Mr. Lai: Generally speaking, I am optimistic about the market outlook if the epidemic eased globally. Firstly, all countries are eager to resume production at present, so the demand will improve continuously. Most overseas orders were placed in China for production or purchases, and the global nickel market showed signs of destocking, but the trend remains to be seen. Secondly, nickel cathode is mainly used for high-end consumption. In the post-epidemic era, under the premise of stable international political relations and clear restoration of Sino-US relations, it is expected that stable growth will be maintained. Thus, I predict that the prices of nickel cathode would fluctuate upward gradually on the whole and hover at RMB130,000-150,000/t (USD20,073-23,161/t) in H2 of 2021.

Asian Metal: Could you summarize the nickel market fluctuations for us throughout this year?

Mr. Lai: The nickel cathode prices stood firm at the bottom of RMB120,000/t (USD18,528/t) on an annual basis. The nickel price is bullish in view of the total demand and market outlook of nickel cathode. It experienced three waves of ups-and-downs between RMB120,000/t (USD18,528/t) and RMB140,000/t (USD21,617/t) early this year, which kept firm bottom price in the short-term, and will follow the fluctuation trend in the Q3 and Q4. Nickel price next year will be mainly affected by two factors: the balance between supply and demand (a dominant condition); the changes of Sino-US relation. I predict that nickel cathode prices would fluctuate at a wider range between RMB130,000-150,000/t (USD20,073-23,161/t) in the coming year. Thus, I am bullish on the market outlook.

Asian Metal: Thank you very much for your wonderful sharing!