2020 PREVIEW: Lackluster stainless steel, EV growth may keep nickel bulls at bay

An already-volatile nickel market will continue to face uncertainty in 2020 while demand wanes and stocks rise amid slowed growth expectations from both the stainless steel and electric battery sectors, market participants predicted.

It is widely acknowledged that nickel demand will be driven by the stainless steel and electric vehicle (EV) battery markets, but many analysts expect stainless steel production growth to slow this year, while supply-chain and demand timelines for nickel use in EV batteries remain cloudy at best.

Nickel stock levels on the London Metal Exchange more than doubled over the course of December, to 150,690 tonnes on Monday December 30 from 68,982 tonnes on December 2.

At its conference in November, China’s Antaike estimated that the global nickel supply deficit shrink halve to 20,000 tonnes in 2020, pointing to a slackening supply picture at a time when demand may be set to decrease.

The LME’s three-month nickel price has depreciated in line with this more liquid stock picture, trading around $14,235 per tonne on December 30 – compared with a year-to-date high of $18,475 per tonne on September 2 – amid news of an expedited Indonesian ore ban, which precipitated supply concerns that appear to have ebbed somewhat.

Rising LME stocks, a reduced global supply deficit and a waning LME three-month nickel price have given rise to bearish market attitudes as 2020 begins.

EV uncertainty
“Nickel’s demand outlook should remain bright, especially from the electric vehicle sector of the automotive industry,” Fastmarkets analyst Andy Farida said.

Indeed, Fastmarkets analysts estimate that 500,000 tonnes of refined nickel will be used annually in lithium-ion (Li-ion) batteries for EVs by 2025, up from 100,000 tonnes in 2018.

That growth in nickel consumption comes even before the wider adoption of the nickel-cobalt-manganese (NCM) 8-1-1 battery, which the market expects to become an industry staple. Still, the increase in demand that battery could bring remains a long way off.

“A recent report drafted by the Ministry of Industry & Information Technology indicates that China will step up its efforts to be a leader in autonomous cars and is aiming for a quarter of all cars sold in the country to be new-energy vehicles [NEVs] by 2025,” Farida added. “NEVs include electric cars, hybrids and fuel-cell vehicles.”

But ED&F Man analyst Edward Meir estimated that EV market uptake would rise by just 5 percentage points to comprise 9% of global vehicle sales by 2022, up from 4% at present, meaning it will take significant time for EV buying to come to the forefront of automotive industry sales. This will affect the timeline for increased nickel demand from the EV battery sector.

And financial adviser Morgan Stanley supports this view, asserting that EV sales are unlikely to surpass those of internal combustion engine (ICE) vehicles until 2036.

And while some bullish participants expect that tipping point to come earlier, most believe the timeline indicates that the effects of EV demand on the price of nickel, in addition to physical EV demand, are still some way off.

“The trend is definitely that EV demand is moving up, and that demand for internal combustion engines is moving down,” Meir said. “But there will not be much EV action for nickel in 2020.”

Softer stainless steel output expected
Demand from the stainless steel market is expected to remain the dominant driver for nickel in 2020, accounting for an estimated 70% of nickel market share.

But while China’s stainless steel output, which accounts for approximately 50% of global production, increased by 9.4% year on year to 29 million tonnes in 2019, that growth rate is expected to slow to just 3.4% in 2020, according to market research and consultancy firm Beijing Antaike Information.

“It is certain that this year’s stainless steel output growth is unlikely to duplicate last year’s, amid a poor global macroeconomic situation and ongoing trade tension between China and the United States… What is uncertain is whether 2020 will actually see a decline, given the current loss-making situation at stainless steel mills,” a China-based stainless steel trader told Fastmarkets. 

“Apart from China, the rest of the world has seen relatively stable stainless steel output, with just minor declines for the past several years, so China holds the key to potential stainless steel growth. If China can’t keep up the increase, then the global stainless steel market can’t see growth,” a raw materials procurer at a stainless steel mill said.

Stainless steel mills in China underwent minor production cuts in 2019 after making losses amid high regional stock levels and lackluster demand. Market participants worry that the stainless steel cuts could persist this year and weigh on nickel demand.

“Stainless steel production in China has been operating at a loss since November, and now stainless steel mills stand to lose 200-300 yuan ($29-43) per tonne,” a Shanghai-based analyst said.

“It is estimated that production cuts will total about 60,000 tonnes in December, which is not much compared with China’s average monthly output of 2.41 million tonnes. But as we enter 2020, the market is worried that production cuts at stainless steel mills will become a norm this year if stainless steel production losses continue. This will mean that stainless output in 2020 will fall, and nickel demand will be dampened accordingly,” the analyst added.

Fastmarkets assessed the price of stainless steel cold-rolled coil 2mm grade 304 domestic, ex-whs China at 14,150-14,900 yuan per tonne including value-added tax for the week ended December 11, down from 14,400-15,000 yuan per tonne a week earlier as stainless steel mills reduced offers to prompt sales as part of their destocking activity, in line with slackening demand. That price was assessed at 14,300-15,100 yuan per tonne on December 25.

Fastmarkets research forecast a $16,000-per-tonne base case for the LME three-month nickel price going into the first quarter of 2020. And while this constitutes an increase from the current $14,000-per-tonne level, it is a far cry from the 2019 high of more than $18,000 per tonne.