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Nickel: Who is likely to cut production first?

2020-03-23 07:11:21
Beijing, Mar 23(Antaike)-Every time nickel prices raise, the pursuit and promotion of funds play a role in boosting the momentum, and when nickel prices fall, which part of production will be withdrew first? Cost support is an important consideration, only when nickel prices stay below cash cost line for a long time, can the decision to reduce production be forced by the enterprises. Globally, as most enterprises have experienced the test of extreme low price in 1998 and 2008, nickel output is about 1.44Mt before 2010, which belongs to a rigid base. From 2010 to 2013 more than half of the increase in global nickel production came from China and Indonesia, Indonesia has banned crude ore exports in between 2014-2015, while China¡¯s output has declined, Indonesia¡¯s production has not been released, resulting in the growth of global nickel production from outside China and Indonesia, during 2016-2019, the increase of nickel production in China and Indonesia was 1-2 times of that in the world, indicating that the production of China and Indonesia occupied the market share of other nickel producing countries in this period. Due to the limited supply of nickel ore for NPI raw materials, China's primary nickel production will also decline in the future, and the global increase mainly comes from Indonesia's NPI production. The main components of domestic primary nickel production are nickel cathode and NPI. Domestic nickel cathode output was about 162kt in 2019. In addition to the annual production of about 100kt of self-produced nickel metal of Jinchuan Group Co., Ltd., Xinjiang Xinxin Mining Industry Co., Ltd. and Jilin Ji¡¯en Nickel Industry Co., Ltd., the rest are imported raw materials smelted in China. If the calculation is based on an 80% discount coefficient of raw materials and 20,000 yuan/t of nickel cathode smelting and processing fee, the BEP is 100,000 yuan/ t. If the nickel price is lower than this level, the corresponding raw material coefficient will be reduced. In addition, according to the annual report of MCC Ramu Ni & Co Ltd. in 2018, the total cost of nickel cobalt intermediate products of MCC Ramu is about $13,100 /t, equivalent to 100,000 yuan/t. Therefore, 100,000 yuan/t is basically considered as the cost line of imported raw materials processing nickel cathode. Part of nickel cathode made from domestic raw materials is a low-cost break-even tool, with a total cost of about 65,000 yuan/t, and the other part is made from some deep mining and lean ore, with a total cost of about 90,000 yuan/ t. Domestic NPI cost is changing with nickel prices and nickel ore prices go up and down with nickel prices. 2015-2016 was the most difficult period of NPI production, since then, nickel prices have surged, and NPI enterprises have made a lot of profits. Therefore, based on the cost analysis of NPI in China at that time, where is the bottom line? In 2015-2016, the supply of nickel ore was sufficient, at that time, the output of about 380kt was basically defaulted to the rigid base production of domestic NPI, the cost of domestic NPI was 60,000-70,000 yuan/t from the end of 2015 to the beginning of 2016, NPI enterprises were basically operating at breakeven at that time, and the cost of this part of production rose to about 75,000 yuan /t in 2019. In 2019 the other 220kt of domestic 600kt NPI output are price sensitive floating production. It is well known that the key to determine global nickel cost is NPI in Indonesia. Especially after Chinese enterprises invest a lot of RKEF production lines in Indonesia, the process is becoming more mature process and the cost is decreasing. The total cost of mainstream NPI is between $8,000-9,000/t, which is equivalent to 67,000 yuan/t based on $8,500/t. Thus, with the decrease of nickel prices, the order of capacity clearing may start from the imported raw materials processing nickel cathode and domestic high-cost NPI. For the imported intermediate processed nickel cathode, if the pricing coefficient is lowered, the intermediate products producers are under pressure of loss, and if the pricing coefficient maintains unchanged, the smelters will be under pressure. In a word, they are in a relatively difficult situation. Although the cost of processing part of imported raw materials is the highest, the supply of this part of raw materials belongs to the state-owned enterprises, some of them can use the low-cost nickel cathode produced by the local nickel mine to share the cost with others, judging from the performance in 2015-2016, this part of production reduction has little momentum. Considering the drop of China's imported nickel ore in 2020, Antaike will reduce domestic NPI output from 600kt in 2019 to 500kt in 2020, China's high cost NPI production will be about 220kt in 2019 and 120kt in 2020. If nickel price fluctuates between 90,000yuan/t and 100,000 yuan/t, this part of production will face the double pressure of rising raw material price and falling product price and take the lead in reducing production, besides some international enterprises will slow down their production pace due to the epidemic, which is expected to reduce the pressure of oversupply in global nickel market in 2020. 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