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Abaxx offers sulphate solution for broken nickel market

Kitco News

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 , 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 and BYD . 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 China's imports of intermediate products boom (Editing by Mike Harrison)

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