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LONDON: China has bailed out the copper and aluminium markets by importing record amounts of the rest of the world’s surplus metal.

Not so the nickel market, however.

Chinese imports of refined nickel fell by 32% year-on-year to 130,700 tonnes in 2020. It was the lowest annual total since 2014.

This has not held back the London Metal Exchange (LME) nickel price, currently trading close to 17-month highs at $18,675 per tonne.

However, China’s lack of import appetite is evident in abundant LME stocks, which stand at 249,846 tonnes, up from 156,000 tonnes at the start of 2020. It is also clear to see in the LME contract’s loose date structure, the benchmark cash-to-three-month period closing out Wednesday at a $45 contango.

It’s not that China isn’t buying lots of nickel. It’s just that it’s buying lots of raw material, leaving the refined market undisturbed.

The driving force remains China’s stainless steel sector, which is absorbing ever more Indonesian nickel pig iron (NPI).

But there are signs that growing demand from the battery sector is starting to make an impact on China’s nickel trade landscape. A Chinese nickel sulphate supply squeeze may accelerate that shift.

It could, though, also trigger another reformulation of entire nickel supply chain.

FERROUS FLOWS

While China’s refined metal imports slid further last year, those of ferronickel and NPI boomed, up 80% on 2019 at 3.4 million tonnes. The lion’s share is now coming from Indonesia, which has been building out NPI capacity after miners were banned from exporting nickel ore at the start of 2020.

The flow of Indonesian NPI to China’s stainless steel sector mushroomed from just 600,000 tonnes in 2018 to 2.7 million tonnes last year.

The flip side of the Indonesian export ban was a 30% reduction in Chinese imports of ores and concentrates last year. Alternative suppliers such as the Philippines and New Caledonia were unable to compensate for the loss of Indonesian material.

The shifts in raw material flows since the Indonesian export ban shouldn’t distract from the core fact that all these nickel products are headed for China’s stainless steel sector.

It is the sharp recovery across the country’s ferrous sector that has been lifting demand for nickel raw materials, whether ore, NPI or ferronickel.

China’s stainless mills have enjoyed their share of the demand boom created by rapid COVID-19 recovery and government stimulus.

The country’s stainless production rose by 4% in the third quarter of last year, while that in the rest of the world fell by 9%, according to the International Stainless Steel Forum.

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