1. Report Industry Investment Rating - The rating for the trend of nickel and stainless steel is "sideways" [1] 2. Core Viewpoints of the Report - The downstream demand weakness is gradually giving negative feedback to the upstream. The smelting sector is suffering large - scale losses, and only the MHP segment has a good profit margin. This will make smelters more inclined to push down the price of pyrometallurgical ores. In the third quarter, with the reduced impact of the rainy season in Indonesia, production and transportation efficiency will improve marginally, and the pyrometallurgical ores in Indonesia will face pressure of declining premiums. However, the supply of high - grade pyrometallurgical ores is tight, which may limit the decline in prices [2][70] - Currently, both upstream and downstream are squeezing the smelting profit to an inverted state. The output adjustment actions of Chinese - funded enterprises are less sensitive to profit. If the short - term production cut is less than expected, the oversupply situation may intensify. In terms of structure, new capacity of NPI in Indonesia is still being put into production, but most of the production schedules have been postponed. The supply - demand situation has deteriorated marginally. Attention should be paid to the production cut rhythm in the second half of the year. For refined nickel, it is still in the expansion cycle, but the share is gradually concentrating on the leading enterprises. The integration of hydrometallurgy squeezing pyrometallurgy is the future trend. The supply increment this year basically matches the increment of intermediate products. However, the current implicit inventory replenishment supports the explicit inventory, and its sustainability in the second half of the year needs to be monitored [3] - In the second half of the year, the nickel consumption side has declined compared with the initial expectations at the beginning of the year. For stainless steel, although the export side is okay, tariffs will indirectly suppress domestic demand. Due to weak demand, steel mills are suffering losses and cutting production, which weakens the nickel consumption. For ternary materials, it is estimated that the year - on - year decline in production in the second half of the year will narrow compared with the first half of the year. In general, the domestic ternary nickel consumption will decline by 14,000 metal tons year - on - year. Abroad, the ternary production capacity is gradually ramping up, which will make up for part of the reduction in China from a global perspective. Comprehensively, the consumption of nickel sulfate will show a slight decline [4] 3. Summary According to the Directory 3.1 Mineral End 3.1.1 Sulfide Nickel Ore - The production cut rhythm of sulfide nickel ore has slowed down, and the existing production lines are operating stably. Vale's Onça Puma operation area achieved higher production after the furnace reconstruction in Q1 2024, and Canada's VBME also promoted a large year - on - year increase in the sulfide nickel ore project in the Canadian region due to higher production. Russian nickel's production in Q1 2025 decreased by 1.1% year - on - year to 41,600 tons due to the short - term maintenance plans of the Nadezhda smelter and the Talnakh concentrator. Currently, Russian nickel is facing a decline in foreign currency income due to the appreciation of the ruble and the restriction of high - interest rates on investment plans. In the context of the trade war, weak demand may drag down the overall production. The company expects the total refined nickel production in 2025 to reach 204,000 - 211,000 tons, and it is more likely to fall on the left side of the range, basically flat year - on - year [23] - In Australia, the production of the currently operating nickel ore projects remained at a low level in the first quarter. The decline in ore grade has indirectly led to an increase in mining and processing costs and a marginal decrease in the final output of nickel products. BHP stopped the operation of its refined nickel production line in October last year. In Q1 2025, it only had a high - grade nickel matte production of 2,300 metal tons, and the mine end was completely shut down. The Mt Keith and Leinster nickel ore projects had zero production in Q1 2025, and the high - grade nickel matte project is also expected to stop production later. IGO has only had the Nova project since the fourth quarter of last year. In Q1 2025, its nickel production decreased by 6.5% year - on - year to 4,279 metal tons (only comparing Nova itself, the total production decreased by 34.4% year - on - year) and increased by 23% quarter - on - quarter. Although the nickel ore grade has been improved this quarter due to factors such as the mining sequence and the stoping area, the expected nickel ore grade this year is still at a historical low. It is estimated that the nickel production in the 2025 fiscal year will be on the left side of the guidance range (guidance: 15,000 - 18,000 tons). The Nova - Bollinger mine is expected to stop production at the end of Q4 2026 due to grade depletion [24] - Overall, after the large - scale clearance of high - cost production lines of sulfide nickel ore in 2024, the existing production capacity can basically maintain normal production and is no longer affected by the profit collapse. It is expected that except for the Nova project, which will stop production due to reserve issues, the production of other sulfide nickel ore projects will basically fluctuate within the current production range [28] 3.1.2 Laterite Nickel Ore - **Indonesia**: The expectation of ore shortage within the year has been alleviated, and the nickel ore price is under great pressure to decline in the third quarter. At the beginning of the year, although APNI announced that the annual nickel ore quota had been approved for about 298 million wet tons, the Ministry of Energy and Mineral Resources later set the annual nickel ore production target at 220 million wet tons and repeatedly stated that it would cut the RKAB nickel ore quota. Coupled with the heavy rainfall on the Greater K Island, the local transportation and supply rhythm were restricted, and the nickel ore premium quickly increased. As of the end of May, the approved RKAB quota in Indonesia was about 300 million wet tons. However, due to the long rainy season on the Greater K Island this year and the mismatch between the actual shipment capacity and production capacity of some mines that have obtained RKAB approvals, the supply of nickel ore in the market is still tight, and the domestic trade price has not weakened. It is estimated that the annual nickel ore consumption in Indonesia will reach 280 - 290 million wet tons, and the supply, after considering the supply efficiency based on the quota, is expected to be about 260 million wet tons, still having a certain supply - demand gap. This gap can be partly filled by importing nickel ore from the Philippines, but the cost is relatively high, which puts great pressure on smelters. In the second half of the year, there is still an import demand for Philippine nickel ore, but the year - on - year growth rate should slow down compared with the first half of the year, with an estimated annual import volume of over 14 million wet tons. If the domestic nickel ore quota in Indonesia is insufficient, mining enterprises can still apply for new quotas to expand the supply [29][32] - **Philippines**: There was a short - term supply - demand mismatch in the first half of the year, and the price is under great pressure to decline in the second half of the year. With the significant year - on - year increase in Indonesia's demand for Philippine nickel ore and the 4.7% year - on - year decline in the first - quarter production of Philippine nickel ore, the tight supply pattern of Philippine nickel ore has pushed up the price rapidly. The CIF price of 1.4% grade nickel ore from the Philippines to Indonesia and China has risen from $44 per wet ton at the beginning of the year to about $53 per wet ton in mid - June. It is estimated that the raw material demand will weaken marginally in the third quarter, and the price will be under pressure. The production of Philippine nickel ore has strong seasonality. Affected by the long rainy season this year, the first - quarter production decreased by 4.7% year - on - year. Based on the analysis of Indonesian nickel ore, the annual demand for Philippine nickel ore from Indonesia is supported, but the year - on - year growth rate slows down compared with the first half of the year. The iron plants in China are expected to maintain rigid demand. The annual production forecast of Philippine nickel ore is raised to 401,000 metal tons, a year - on - year decline of 1.3%. From the perspective of domestic imports and port inventories, Philippine nickel ore is still the main import source. The port inventory has decreased rapidly this year, and the overall domestic import volume has decreased significantly year - on - year. It is expected that the domestic import volume of Philippine nickel ore will continue to decline year - on - year before the ore price drops or the NPI profit recovers. In the first quarter, the income of major nickel ore enterprises in the Philippines increased significantly. Asian Nickel's first - quarter sales revenue increased by 16% year - on - year, but the combined EBITDA decreased by 80 million pesos year - on - year due to the increase in marginal cost caused by bad weather. The income of Global Ferronickel in the first quarter reached 1.22 billion pesos, and the net profit attributable to FNI shareholders increased significantly from 10.6 million pesos in the same period last year to 170 million pesos. In terms of new nickel ore projects, Asian Nickel has adjusted its exploration plan, with the South Upper Guintalunan project put into production at the end of 2024 and Manicani expected to contribute incremental production in 2025 [52][53][63] 3.1.3 Conclusion and Thoughts - The clearance process of high - cost sulfide nickel ore production lines is basically over. Except for the Nova project, which will stop production due to reserve issues, the production of other sulfide nickel ore projects will basically fluctuate within the current production range [70] - The supply of laterite nickel ore was tight in the first half of the year, and attention should be paid to the rhythm of ore supply loosening and price decline. The nickel ore market in Indonesia has felt tight since the beginning of 2025. The high import volume of Philippine nickel ore may be a last - resort measure due to the shortage. The "ore shortage" concern mentioned in the first - quarter report has been temporarily alleviated, but the annual supply is still tight, and new quotas may be released in the fourth quarter. Currently, the downstream demand weakness is giving negative feedback to the upstream. The smelting sector is suffering large - scale losses, and only the MHP segment has a good profit margin. This will make smelters more inclined to push down the price of pyrometallurgical ores. It is judged that in the third quarter, with the reduced impact of the rainy season in Indonesia, the pyrometallurgical ores in Indonesia will face pressure of declining premiums. However, the high - grade pyrometallurgical ores are still scarce in the market, which may limit the decline in price [70] 3.2 Smelting End 3.2.1 Nickel Iron - **China**: After the low - cost NPI from Indonesia has squeezed the domestic market share, the high - cost production lines of domestic nickel iron plants have basically been cleared. The domestic enterprises still in operation are mostly integrated with downstream steel mills for self - use, and only a small amount of marketable resources are still in production. It is expected that the domestic production will maintain a low - level fluctuation, and more expansion projects will be invested in Indonesia. It is relatively difficult to see further domestic production cuts, which may require the joint production cut of downstream stainless steel. In 2025, the monthly NPI production in China is basically between 22,000 - 25,000 metal tons. From January to May, the production decreased slightly to 115,000 metal tons compared with the same period last year. From January to April, the import volume was 442,000 metal tons, an increase of 62,000 metal tons or 16.4% year - on - year. Considering the expected weakening of stainless steel consumption in the future, it is estimated that the domestic NPI production will decrease by 10,000 metal tons to 290,000 metal tons this year. After the US reciprocal tariff was implemented in April, the demand for downstream stainless steel weakened significantly. In May, some cold - rolling mills began to cut production, which gradually led to a slowdown in NPI procurement and an accumulation of NPI social inventory. As of mid - June, the NPI inventory in major domestic regions reached 34,610 tons, with a year - on - year/quarter - on - quarter inventory accumulation rate of 57.9%/10% [75][79] - **Indonesia**: In the first half of 2025, 6 new submerged arc furnaces were put into production in Indonesia, and the production increase rate slowed down significantly, with a total new annual production capacity of about 90,000 metal tons. Currently, the total number of operating furnaces in Indonesia has reached 223, and the capacity utilization rate is about 70% - 80%. From January to May, the total NPI production in Indonesia was 751,000 metal tons, a year - on - year increase of 23%. From the cost - profit perspective, the current cost of a single nickel point in Indonesia is about 957 - 1040 yuan per nickel, and the corresponding gross profit margin at a price of 940 yuan per nickel (ex - ship, tax included) is between - 12% and - 3%. Both Chinese and Indonesian iron plants are in a loss state, and downstream steel mills have a strong intention to push down the raw material price. Although NPI has cost support and is restricted from further decline, there is no driving force for a rebound. If the nickel ore price drops as expected in the second half of the year and the stainless steel demand does not recover, NPI may face further price pressure due to cost reduction. It is believed that NPI will face production cut pressure in the second half of the year due to weakening demand and shrinking profit. If the production cut is less than expected, the balance sheet may further deteriorate, leading to a further decline in the NPI price. The overall production capacity expansion speed this year has slowed down significantly. In the first half of the year, only KPS, NMI, NNI, and CNI put a total of 6 furnaces into production, involving a production capacity of about 90,000 metal tons. Under the current industry competition, the new production line investment is often postponed, and some un - commissioned furnaces may be directly shut down [81] 3.2.2 Intermediate Products: High - Grade Nickel Matte and MHP - MHP is currently the product with the lowest cost and best profit in the smelting sector, showing a gradual expansion trend this year. However, due to the large initial investment, long pay - back period, and long construction period of hydrometallurgical production capacity, new entrants are mostly large - scale leading enterprises, and the production capacity release process is relatively slow. From January to May 2025, the total MHP production in Indonesia was 184,800 metal tons, a year - on - year increase of 66%. In late March, due to environmental factors, some hydrometallurgical production lines were shut down, resulting in a month - on - month decrease of about 7,000 metal tons in production, which was fully recovered in mid - May. As of June, the commissioned MHP production lines have basically reached full production or even over - production, and future production growth depends on the new production capacity release speed [92] - In the first quarter, the economic efficiency of high - grade nickel matte was worse than that of NPI produced by the same RKEF production line. Since the conversion between RKEF production of NPI and high - grade nickel matte is very flexible, most production lines such as Zhongwei, Huake, and Xuri switched to NPI production, and the high - grade nickel matte production decreased rapidly. From January to May 2025, the total production of low - grade and high - grade nickel matte in Indonesia (excluding the part of low - grade nickel matte converted to high - grade nickel matte) was 114,000 metal tons, a year - on - year decrease of 10.8%, lower than the levels in 2023 and 2024. The oxygen - enriched side - blowing production line is only used for high - grade nickel matte production, but its current production capacity accounts for a relatively low proportion. In May, the production of high - grade nickel matte from the oxygen - enriched side - blowing production accounted for about 14% [93] - Considering the combined monthly metal production of MHP and high - grade nickel matte, it has shown a rapid downward trend since the beginning of the year. Even when combined with the NPI metal production, it has shown a slight downward trend, which may reflect the tight supply of nickel ore. Looking forward, if the smelting sector is reluctant to cut production despite strong downstream negative feedback and the nickel ore supply is expected to loosen, and if the combined metal production of the three shows a marginal upward trend, the high demand for nickel ore will continue, which will limit the decline in nickel ore price, and the high - price nickel ore will squeeze the smelting profit and limit production expansion. On the contrary, if the smelting sector cuts production due to profit inversion, the demand for raw materials will weaken, and the nickel ore price may decline, leading to a simultaneous decline in smelting production and cost. Overall, under the continuous downstream negative feedback, it is believed that the smelting production will likely decline in the future, and the profit inversion will also put pressure on the nickel ore price. As long as the nickel ore supply loosens marginally, it will prompt the smelting sector to re - establish a balance at a reasonable low level [94] - China mainly imports intermediate products, with