Recently, "LME nickel futures event" in the global market caused a storm. After the event, LME took temporary suspension, set up the new limit rules, allowing enterprises to move positions to relieve delivery pressure, and actively mediate between long and short positions. The LME reopened at 8am London time on March 16, but trading after the opening showed that the system was not fully up and running. However, the LME is trying to restore the system in order to preserve the UK financial industry and its century-old brand reputation.
There are many factors contributing to this incident. From the perspective of the global nickel industry transformation, the contradiction between the traditional nickel pricing mechanism and the new development situation is caused by the existing nickel futures contract design can not keep up with the great changes in the global nickel industry.
Global Nickel Industry chain
The pattern of "advancing east and retreating west" is gradually presented
From the perspective of geographical change, from 2001 to 2021, China's share of global primary nickel consumption increased from 4.5 percent to 56 percent . China's share of global stainless steel production rose from 3.7 percent to 56 percent . Meanwhile, In 2005, China surpassed Japan to become the world's largest nickel consumer and the world's largest stainless steel producer. In 2009, China overtook Russia to become the world's largest producer of primary nickel. In 2021, Indonesia surpassed China to become the largest nickel producer, and the production share of China and India accounts for 60 percent of the global total. Driven by Chinese enterprises, Indonesia has become the second largest stainless steel producer in the world. In the same year, China accounted for 78 percent of the global production of ternary precursors. Ternary cathode material production accounted for 60 percent of the world's total output.
From the perspective of product structure change, in 2012, primary nickel (electrolytic nickel plate, nickel bean, nickel bead) production accounted for 51 percent , secondary nickel (ferric nickel, nickel pig iron, sintered nickel oxide, universal nickel) production accounted for 38 percent , nickel salt (nickel sulfate, nickel nitrate, etc.) production accounted for 11 percent . In 2021, 33 percent of the world's primary nickel production will be primary nickel, and nearly 50 percent will be nickel pig iron, with the rest made up of conventional nickel iron and nickel salt. In the future global nickel product mix, the proportion of primary nickel production will continue to decline, while the proportion of nickel pig iron and nickel sulfate production will continue to increase. By 2025, primary nickel production is expected to account for 17.7 percent of global primary nickel production, while nickel pig iron, ferric nickel and nickel salt production are expected to account for a combined 82.2 percent .
The main variable that affects nickel price change
During the 41 years from 1980 to 2021, the global nickel price trend can be roughly divided into four stages:
The first stage is before 2001, the United States, Japan and Europe were the main countries and regions of nickel production and consumption at that time, and the pricing subjects and influencing factors had distinct characteristics of The Times.
The second stage is from 2001 to 2010. After China's accession to the WTO, the global commodity market developed rapidly and ushered in the "golden decade". The demand in the market stimulated the rising price, and Chinese nickel enterprises formally entered the global horizon.
In the third stage, from 2011 to 2016, China, Indonesia and the Philippines dominated the global nickel supply, laterite nickel ore became the "new favorite of the market", and nickel price generally showed a downward trend.
The fourth stage is from 2017 to the global EV development stage. The application of nickel expands new development space and China's influence in the global nickel market increases year by year.
As the global pricing authority of non-ferrous metals, LME has a great influence on market prices. However, it is also a product of The Times when the United States, Japan and Europe are the main producers and consumers. In 2001, China entered the global market, showing enormous influence on both supply and demand. As the global nickel production and consumption center shifts to Asia, especially to China, China has become the biggest variable affecting the nickel market price factor.
From the recent performance of the domestic spot market, industry chain customers reflected the nickel price of the basic judgment, the domestic spot market transaction will affect the futures market. Prior to the absence of LME quotes, domestic futures exchanges operated normally, stabilizing market sentiment. After the LME opened, the domestic nickel futures and spot market prices had a certain guiding effect on the LME. It can be said that this "nickel futures event" not only reflects the improvement of China's pricing influence in the futures market, but also reflects the price discourse power of the global nickel real industry chain represented by China.
To meet the needs of emerging markets for hedging
The looming
The development of new energy vehicles has brought huge consumption expectations to the nickel market. According to IEA data, based on "the global sales of new energy vehicles will reach 46 million in 2030, the global power battery installation capacity will reach 3000Gwh and the penetration rate of new energy vehicles will reach 50 percent ", the compound growth rate of global primary nickel consumption will be 6 percent from 2021 to 2030, and the compound growth rate of nickel demand in the power battery industry will exceed 40 percent .
To meet the huge demand of the battery industry, a lot of money has poured into Indonesia in recent years, making it a hot spot for global nickel investment. But some foreign traditional nickel production enterprises, because of a variety of reasons, the output does not increase but fall. With the sudden rise of the industrial chain at the supply end (nickel pig iron, nickel matte, nickel wet intermediate, nickel matte, nickel sulfate) and the vigorous development of the new energy industry chain at the consumer end (terpolymer precursor, cathode material, battery, automobile), nickel sulfate industry chain enterprises have the demand of maintaining value in response to the fluctuation of nickel price. As a new and rapidly growing market, the number of related enterprises increases year by year, and these enterprises have become the potential customers of major exchanges at home and abroad in recent years. However, at present, the futures exchanges at home and abroad all take electrolytic nickel as the trading target, and no contract is completely suitable for their products. How can exchanges meet the preservation needs of these emerging markets and new customers? The author suggests that futures exchanges at home and abroad should keep pace with The Times and develop new contracts, such as nickel pig iron or nickel sulfate with large circulation.
The nickel price will return to rationality in the future
London time on March 16, the LME resumed trading, with absolute prices now higher than at home. So, the international and domestic can maintain the past cross-market arbitrage, price convergence model? In what range will nickel price be stable in the future? The author thinks, value decides price, price fluctuates around value. The value of nickel and the general trend of subsequent nickel price can be analyzed at several key points since LME began nickel trading.
In 1979, the LME began trading nickel. From 1980 to 2021, the average price of LME 3-month futures since 1980 is 11,310 USD/ton. The average price since 2001 is 15,798 per ton; The average price since 2005 (Philippines, Indonesia laterite nickel ore into the supply end, China began to produce nickel pig iron) is 17,389 / ton; The average price since 2017 (when three-way power batteries came into sight) is 13,991 / ton. From 2000 to 2021, the annual price in 2007 was the highest at 36,126 / ton. Taking into account the effects of inflation and other factors, the average LME three-month futures price from 2001 to 2021 is 22,979 / ton.
In the fourth quarter of 2021, nickel prices were widely expected to move higher and lower in 2022. The author believes that, on the one hand, the new nickel project in Indonesia is mainly to meet the increasing demand for batteries, automobiles and other downstream fields. On the other hand, the United States, South Korea, Europe and other countries and regions increasingly pay attention to battery metal, nickel and other strategic metals there is the possibility of unconventional demand. At this stage, the global nickel market has not yet to squeeze out the high cost of stock stage, the future market should not be too pessimistic.
Based on more than 20 years of nickel price operation data across the economic cycle, and considering the key factors affecting the development of nickel industry, the author believes that lunni price is expected to fluctuate at 30,000 / ton in the second quarter of 2022. Prices could fall to around 22,000 a tonne in the second half, given the pace of new projects coming on stream in Indonesia and high prices dampening consumption.
New problems under new circumstances
Will the recent occurrence of "nickel futures event" affect the enthusiasm of enterprises to participate in futures? What can we learn from the new varieties in the future? The author believes that the impact in the short term is inevitable, but because of the particularity of nickel, for most non-ferrous metal varieties, years of operation experience shows that the current mechanism can basically meet the development requirements of the industry. Of course, relevant enterprises take the initiative to carry out self-examination, nip in the bud is very necessary.
With the proposal of the dual carbon target, the proportion of clean energy in the energy mix has increased, and the development of global electric vehicles has reached an upsurge. In recent years, the market share of nickel, cobalt, lithium and silicon is increasing and there are many participants. The cME has already launched a lithium futures contract, and the London Metal Exchange is also planning to launch some new battery metal contracts. It can be seen that major futures exchanges attach great importance to emerging industries and markets.
