Column: Abaxx offers sulphate solution for broken nickel market

Abaxx Technologies

01/09/2023 15:20

By Andy Home
       LONDON, Sept 1 (Reuters) - It's been a year and a half
since the London Metal Exchange (LME) nickel contract went into
meltdown, forcing the suspension of trading and the
controversial decision to cancel trades. 
    The nickel market is still looking for a pricing solution
that can encompass both refined metal and the new streams of
nickel products flowing into the fast-growing electric vehicle
(EV) battery sector. 
    Singapore's Abaxx Commodities Exchange thinks a new nickel
sulphate contract could be the answer. 
    The company, owned by Canadian-listed Abaxx Technologies Inc
 ABXX.NLB , is hoping to a have a physically-settled futures
contract up and running by the end of this year. 
    A sulphate contract would not directly challenge either the
LME or the Shanghai Futures Exchange, both of which currently
trade only Class I refined nickel, but rather extend futures
coverage to what is the fastest-growing segment of the global
market. 
    
    SULPHATE SURGE
    Nickel sulphate has traditionally been used in
electro-plating with production limited to a handful of primary
metal refineries. 
    However, it is rapidly evolving from niche to mainstream
product thanks to its use as a precursor material in EV battery
cathodes. 
    The sulphate market has been forecast by research house
Roskill to grow at an annual rate of 22% over the current decade
as the green mobility revolution accelerates. 
    One way of producing sulphate is to take refined nickel and
dissolve it in sulphuric acid, which is why there has been such
a drain on exchange stocks of Class I material over the last two
years. 
    LME headline stocks of 37,170 metric tons are hovering at
their lowest level since 2007 as battery-makers draw from the
market of last resort to cover their needs. 
    Chinese operators are closing the sulphate supply-demand gap
by developing new processing paths for converting lower-grade
ores into battery-grade nickel. 
    Indonesia is the giant laboratory for this experimentation
with multiple operators now generating nickel matte and mixed
hydroxide precipitate (MHP) as inputs to the sulphate production
process. 
    
    TRADE BOOM
    China's surging imports of nickel sulphate are a reflection
of the product's stunning growth as battery cathode input. The
country is home to the largest EV market and giant battery
manufacturers such as CATL  300750.SZ  and BYD  002594.SZ .
    China imported just 4,300 metric tons of sulphate as
recently as 2019. Imports last year grew to 54,000 metric tons
and volumes have mushroomed again this year. 
    July's tally of 12,000 metric tons was a new monthly record
and lifted the year-to-date total to 48,000. 
    Imports from traditional trade partners, such as Finland and
South Africa, are now being boosted by a new flow of sulphate
from Indonesia. Indonesian shipments only began in May but have
already reached 10,000 metric tons. 
    China also exports sulphate in increasing quantities,
shipping 9,000 metric tons in the first seven months of the
year, most of it to South Korea.
    China's sulphate trade, however, is just the tip of a much
bigger flow of Indonesian nickel raw materials.
    Imports of Indonesian matte only started in early 2022. By
the end of they year they had reached 168,000 metric tons. The
tally over the first seven months of 2023 was 141,000 metric
tons. 
    Inbound flows of Indonesian intermediate products including
MHP grew from zero in 2020 to 460,000 metric tons last year.
Imports have nearly doubled again this year, to 411,000 through
July. 
    
    PRICING PROBLEMS
    None of this new Indonesia-China nickel trade has a natural
exchange pricing home. 
    Although other forms of nickel can be hedged against the
LME's Class I contract, they are not deliverable, meaning no
physical bridge between futures price and underlying market. 
    Short position holders have no physical delivery option, as
China's Tsingshan Group and others found out to their cost
during last year's LME breakdown.
    LME nickel trading volumes have stabilised but are still
running significantly below levels seen prior to the March 2022
trading halt. Average daily volumes have fallen from 65,000
contracts in 2021 to 37,000 in the first seven months of this
year. 
    The exchange is expanding the number of deliverable brands,
including those from new Chinese Class I producers, but has so
far failed to find a pricing solution for all the nickel that
doesn't come in refined form. 
    Deliverability is a key problem. A material such as nickel
matte can vary immensely in terms of nickel content and impurity
levels, making it hard to find a representative grade that could
be used as a physical benchmark. 
    The Shanghai Futures Exchange is in the same bind and is
plagued by even lower inventory with registered stocks of just
3,800 metric tons. 
    Waiting in the wings is Global Commodity Holdings, which is
working on an alternative nickel pricing mechanism over its
globalCOAL trading platform. But its initial focus is also on
the refined nickel segment of the market.
    A first-of-its-kind sulphate contract is an interesting
potential answer to nickel's pricing dilemma, capturing not only
the sulphate market itself but all the other raw materials that
are being used as processing steps to battery-grade nickel. 
    Everything depends on whether Abaxx can translate its
sulphate solution into a contract sufficiently liquid to entice
industrial hedgers. 
    The company said it has been collaborating with 21 nickel
players, including two major global auto manufacturers, two
global mining companies, six merchants, two EV battery
manufacturers, three sulphate producers and four bank and broker
trading firms.
    If nothing else, that says a lot about how many participants
are looking for a new pricing venue to capture what is fast
emerging as a whole new nickel market. 
    
    The opinions expressed here are those of the author, a
columnist for Reuters.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China's surging imports of nickel sulphate    https://tmsnrt.rs/3R4wHxs
China's imports of intermediate products boom    https://tmsnrt.rs/44w6cE9
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Mike Harrison)
 ((andy.home@thomsonreuters.com, 44-207-542-4412 and on Twitter
https://twitter.com/AndyHomeMetals))