By Andrew Cole, Andy Farida and Thorsten Schier
Nickel prices have been capped by the $20,000-per-tonne level this year, failing to sustain a meaningful break higher despite attempts in February and again repeatedly during July-September. The London Metal Exchange three-month price peaked at $20,705 per tonne during intraday trading in early September, which was a seven-year high, but we think nickel bulls will probably have to make do with this because the window of opportunity to achieve a break above $20,000 per tonne has likely closed for the year.
Nickel’s fundamental narrative earlier in the year was dominated by a bullish combination of supply disruptions and very strong demand from both the stainless steel and battery markets, especially in China. On supply, outside Indonesia (where output, uniquely, continues to surge amid huge capacity additions), world nickel production declined in the first half of the year by around 10%, such was the scale of disruptions affecting major producers in many countries, including New Caledonia, Russia, Finland and Australia (and later Canada). On demand, global growth came in at a spectacular 23.8% in the first seven months of the year, according to the latest International Nickel Study Group data, including 21% in China and 105% in Indonesia – the world’s two largest nickel-consuming countries. Those supply-demand dynamics have put the nickel market in a deficit on an unprecedented scale this year.
But while we enter the fourth quarter, supply is recovering because the disruptions have mostly passed their worst and the demand peak for the year has passed as well, exacerbated by power consumption restrictions in China. Additionally, at the macroeconomic level, the credit impulse has peaked too, as has industrial production growth. So, if nickel could not break $20,000 per tonne earlier in the year when the fundamental and macro dynamics were more favorable, we doubt it can manage it now.
It should be a different story next year, however, when supply deficits look set to return, and with a vengeance in the second quarter. That should ensure any price dips in the interim attract solid dip buying and that $20,000 per tonne can be overcome more sustainably next year while global inventories fall to 10-year lows.
View the nickel prices in this article
What buyers are saying
- High and volatile LME prices are a concern for buyers, who feel they do not control their costs very well. Buyers are timing their buys with swings in LME pricing.
- Extreme physical shortages are concerning buyers, who have been chasing units all year.
What sellers are saying
- Strong steel demand bodes well for nickel consumption, and should support higher contract premiums in 2022, producers say.
- A projected surplus has swung into a deficit because consumption has increased and global production has not kept up.
Nickel battery raw materials: a fast growing market
Availability of raw materials to produce nickel sulfate for the fast-growing lithium-ion battery sector stands to improve notably in 2022 after a very tight year of supply in 2021.
Production of nickel matte should increase by 43% while integrated facilities recover from disruptions this year and, more importantly, as standalone matte production lines and nickel pig iron-matte conversion capacity comes on stream in Indonesia, both dedicated to the battery supply chain.
Production of mixed hydroxide and sulfide precipitates should rise by 39%, while Goro in New Caledonia ramps back up, while Ravensthorpe in Australia stabilizes and while more high-pressure acid leach projects start up, joining the first phase of the Lygend-Harita joint venture PT HPL which began operating in May this year.
Separately, production of nickel briquette should grow by 12% next year, mainly driven by the completion of the ramp-up of Ambatovy in Madagascar after it was suspended for a year due to Covid-19, only resuming production in March.
