Since March 2021, influenced by the news that Qingshan will sell 75,000 tons of high-grade nickel products, nickel prices have plummeted sharply, with Shanghai nickel and London nickel respectively falling below 120,000 yuan/ton and 16,000 USD/ton. Where does high-grade nickel come from? Why does the news about high-grade nickel have such a significant impact on nickel price trends? The following will analyze this in detail.

Nickel

High-grade Nickel

High-grade nickel, known in English as Nickel matte, is an intermediate product of sulfides of metals such as nickel, copper, cobalt, and iron produced from the primary smelting of nickel concentrate through electric and converter furnaces. The nickel content in high-grade nickel generally ranges from 55% to 65%, with a maximum of up to 75%, mainly used for producing electrolytic nickel, nickel sulfate, ferronickel, nickel-containing alloys, and various nickel salts.

Currently, the mainstream process for producing high-grade nickel is using sulfide nickel ore. The domestic Gansu Jinchuan Company utilizes sulfide nickel ore to produce high-grade nickel. Most overseas sulfide nickel ore produces high-grade nickel as an intermediate product for pure nickel; the production process generally goes through a low-grade matte stage.

Figure 1: Process of producing high-grade nickel from sulfide ore

The process of producing high-grade nickel from laterite ore did not suddenly emerge; currently, Indonesia's Vale Indonesia Sorowako Company uses a reduction sulfide smelting method to produce high-grade nickel products as raw materials for supplying Japanese Sumitomo's ternary precursor company. The main process is:

Laterite ore + sulfur-containing material drying and pre-reduction - blowing in a blast furnace at 1500-1600℃ (or electric furnace smelting) - low-nickel matte (low-grade matte) - converter blowing - high-nickel matte (high-grade matte)

Figure 2: Smelting process of laterite ore into high-grade nickel at Vale Indonesia

From current information received, Qingshan's production line for high-grade nickel will transform its ferronickel production line by adding sulfur-containing materials based on the RKEF ferronickel smelting process and then blowing in a converter to obtain high-grade nickels. The main process is as follows:

Laterite ore - RKEF process - High ferronickel - Add sulfur-containing material then blow in a converter - High-grade Nickel.

Nickel

Driving factors for the production of laterite ore into high-grade Nickel

According to our analysis since the second half of 2020, global new energy electric vehicle production and sales have maintained a strong growth trend. The capacity utilization rate of midstream lithium battery and ternary precursor companies has continued to rise sharply; demand for metal (nickel sulfate) remains strong. This is the main factor driving large-scale production of laterite ore into high-grade Nickel.

In terms of demand outlook over the medium to long term, there is a strong certainty regarding demand for lithium battery used in new energy electric vehicles. According to IEA forecasts, global sales of new energy vehicles are expected to reach approximately 13.59 million units by 2025 with an annual growth rate exceeding 35%.

In the short term due to limited new capacity for wet-process intermediates for cobalt-nickel compounds and slow growth in output of raw materials like sulfuric acid used in new energy applications leading to supply shortages. According to data from China Association of Automobile Manufacturers (CAAM), cumulative domestic sales reached approximately289 thousand units from January to February this year—a year-on-year increase of384%. Full-year sales are expected to exceed two million units with over50% year-on-year growth. According to statistics from Xinluo Information Co., Ltd., Chinese companies produced330 thousand tonsof ternary precursors in2020—an increaseof20%year-on-year. Based on public financial reports from listed companies showing significant increases among leading domestic ternary precursor firms—totaling over135 thousand tons—demand for metal increased by54 thousand tons. It’s estimated that ternary precursor output will grow40%to469 thousand tonsin2021 corresponding tonickel metal demandof about180 thousand tons.

On thesupply side considering thatthe largestnew capacityfornickel wet-processsmeltingover recent yearscomesfrom First Quantum’srecoveryof15thousandtonsandIndonesia’sLihua’s15thousandtons respectively.We estimate thatChina’ssulfuric acidoutputwillonlyincreaseby15thousandtonsor11%to158thousandtonsin2021.

Therefore if we measure againstthedomestic sulfuric acidoutputof140thousandtonsand160thousandtonsfor20and21years,the supply gapfor sulfuric acidin2021is estimatedat20to40thousandtons.

In terms of pricing,sulfuric acidusedfornewenergyisstructurallyshortage-prone,andits premiumoverferronickeliscontinuouslyrising.Since entering2021againstthebackdropofstrongdemandandsupplyinthenewenergyelectricvehicleindustry,sulfuricacidpriceshavecontinuedtorise.AsofMarch11,sulfuricacidpricesroseup37750yuan/ton—an increaseofnearly20%comparedtoearlyyear.Becauseofsupplyoversaturationandweakeningmarginaldemandfromstainlesssteeloffseason,nickelferrospriceincreasehasbeenlimited,runningbetween1100yuan/nickeland1200yuan/nickelinprice range.

Based onsulfuricacidpriceat37750yuan/ton,thistranslatesintoanickelmetalpriceof170thousand/ton,nickleferropriceat1150yuan/nicklepoint translatesintoanickelmetalpriceat115thousand/ton.AccordingtoHuayouCobaltIndustryresearchminutesdata,costrangefromnickelferrotohigh-gradenickleandthen tosulfuricacidisbetween15000-20000yuan.IfweestimateQingshan’snickelferrocostat70000yuan/ton,theprofitfromlateritenickelferrorefiningwouldbe115-70000=45000yuan,andtheprofitfromlateritenickle-high-gradenickle-sulfuricacidrefiningwouldbe170-90000=80000yuan.

Thus,economically speaking,itisthehighpricegapbetween sulfuric acidandnickelferroaswellastheprofitfromlateritenickle-refining sulfuric acidexceedingthatfromnickelferro-refiningthathasacceleratedtheproductionlaunchofthelateritenickle-high-gradenickleprojectinIndonesia.

Nickel

Prospectsandoutlookforthelateritenicke-high-gradenickleprocess

For thenickeindustrychain,thematurityofthelateritenicke-ferronicke-high-gradenickleprocesshasopeneduptheindustrialroutefromlateritenicke pyrometallurgytosulfuricacidwhichwillgreatlyalleviatethecurrentstructuralshortageofnickelmateralscausedbyrapidexpansioninbattery materialprojectswithsignificantpracticalmeaningforthedevelopmentofthecurrentnewenergyelectricvehicleindustry.

However,intermsofnickelsupply-demandperspective,thebinarydifferentiationpatternbetweenferronickeandrefinednickelmightalsoreshuffle.Ifhigh-gradenickeandferronicke projectscontinueexpandingmassively,futureoversupplyofferronickenvironmentcouldre-evolveintotheoveralloversupplyofnickelelements.AccordingtoQingshanIndustrypublishedestimatesfor21、22、23years’production60、85、115milliontonsrespectively,itcanbeestimatedthatQingshanIndustry’saverageannualgrowthrateinnickelelementproductionwillapproach30%,withglobalprimarynickelsupplygrowthrateatleastabove7%.