Nickel

A tug war between supply and demand growth

Yan Chen
Managing Director
Head of Basic Materials and Engineering Research
SFC CE Ref: ALZ159

2023.05.16
CICC Research
 Recent demand and supply: rapid growth

The nickel market has grown by c.70% from 2015 to 2022.

 Debottlenecking on production technology on laterite ore was the key for supply growth.
 Laterite ore overtook sulfide.
 Indonesia is the largest nickel producing country, accounting for 38% of global production.

 Power lithium contributes most of incremental demand. The main use of nickel is in the manufacture of stainless steel,
accounting for nearly 70% of total demand. With the rapid development of EVs, the growth in use of Li-ion batteries has been a
significant driver of nickel demand.

Global nickel production in 2021 by country Evolution of nickel supply and demand structure A value chain analysis of nickel industry
①
Sulfide nickel ore Stainless steel Laterite nickel ore Nickel sulfide

① ② Nickel matte MHP Nickel matte

Laterite nickel ore Nickel sulfate

③
NPI Nickel sulfate Electrolytic nickel
Stage 1: Sulfide nickel ore is the main raw material required in the nickel
industry downstream
Stage 2: Laterite nickel ore has become the main raw material for stainless
steel; nickel sulfate utilizes sulfide nickel ore Stainless Ternary Electroplating Alloy
Stage 3: Laterite nickel ore has become the main raw material in steel precursor material
production of stainless steel and nickel sulfate

Source: Corporate filings, USGC, Wood Meckenzie, CRU, CAAM, CICC Research
 Demand outlook: battery in driving seat
Nickel consumption will increase to c.4mn metal tonnes in 2025.
 Battery use: With the increasing popularity of NMC types in battery for EVs, we expect the CAGR for nickel used in batteries may
reach 45.5% over 2021‒2025.
 Stainless steel: The demand for nickel should increase steadily, and we estimate CAGR may be 5‒6% in 2021‒2025.
 We expect the CAGR for nickel demand over 2021-2025 to be 9.3%.

Forecast nickel demand

'000 tonnes 2018 2019 2020 2021 2022E 2023E 2024E 2025E
Li-ion power battery 50 66 86 194 342 514 698 868
Domestic 22 29 31 67 97 124 152 202
Overseas 28 38 55 127 245 390 545 666
Stainless steel 1,517 1,640 1,675 1,916 2,111 2,219 2,317 2,377
Electroplating material 154 152 152 152 152 152 152 152
Alloy 354 373 394 414 431 439 448 457
Others 98 95 93 94 95 95 95 96
Total 2,173 2,327 2,401 2,769 3,131 3,419 3,710 3,950
YoY 6.3% 7.1% 3.2% 15.3% 13.0% 9.2% 8.5% 6.5%

Source: Corporate filings, CICC Research

 Supply outlook: Indonesia taking the lead
Nickel supply will increase to 4mn metal tonnes in 2025.
 New supply is mainly from Indonesia. The planned projects in Indonesia could contribute 0.2mn metal tonnes of new
capacity in 2022E, and about 0.9mn metal tonnes in 2025, giving Indonesia a total capacity of 1.2mt by then.

Production capacity in Indonesia Nickel production of new hydrometallurgy Nickel production of new pyrometallurgy
continues to rise projects in Indonesia projects in Indonesia

Source: Corporate filings, CICC Research

 Cost outlook: laterite leading to cost reduction
Cost curve in 2022
Production cost of nickel sulfate may be reduced systematically

Cost curve would be a key determinant of nickel price

 Most of new projects expected are on the left side of the cost curve
 With the surplus in the long term, nickel price is likely to be determined by
marginal costs.

Production cost under different methods

Cost curve in 2025

Note: assume cobalt price of US$25/pound when calculate cost under hydrometallurgy method
Source: CNKI, corporate filings, Wood Meckenzie, CRU, Mysteel, CICC Research
 Short-term price: futures higher than spot

S&D fundamentals vs sentiment

 Spot price of nickel products is affected only by supply and demand, while futures price is affected by supply and demand and market sentiment
simultaneously.
• S&D side: The revolution of laterite would alleviate the supply shortage and reduce production cost, leading to a fall in spot price of NPI and
nickel sulfate.
• Market side: Due to geopolitics, energy crisis, low inventory and other policy-related factors, market is bullish on the nickel futures, resulting
in a high futures price.

Trading volume of LME Nickel has decreased Nickel inventory at LME and SHFE remains
significantly since March historical low
Trading volume LME Nickel price (10 tsd tonnes) SHFE LME
(RHS)

Source: CAAM, CICC Research

 Medium and long-term price outlook
Long-term supply/demand balance: a slight surplus
 Long-term nickel price to be set by marginal costs. The planned incremental capacity from Indonesia would significantly relieve supply bottleneck
in nickel sulfate in the next 3 years. Marginal cost in the NPI and stainless steel would set the equilibrium price at US$15,000-16,000/tonne.
High growth on both supply and demand = price volatility

Nickel demand-supply balance

(‘000 metal tonnes) 2019 2020 2021 2022E 2023E 2024E 2025E

Total supply of nickel 2,408 2,400 2,653 3,109 3,485 3,729 3,997

YoY 10.0% -0.3% 10.5% 17.2% 12.1% 7.0% 7.2%

Total demand of nickel 2,327 2,401 2,768 3,123 3,409 3,697 3,930

YoY 7.1% 3.2% 15.3% 12.8% 9.2% 8.4% 6.3%

Nickel demand-supply balance

82 -1 -115 -14 76 33 67
(considering inventories)

Source: ISSF, Mysteel, Wood Mackenzie, CRU, CICC Research

 Appendix: key projects in Indonesia
Overview of global hydrometallurgy nickel projects in operation or in construction

Overview of Indonesia pyrometallurgy nickel projects in operation or in construction

Source: Corporate filings, Wood Meckenzie, CRU, Mysteel, CICC Research

Thank You
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