Concerns around financing for nickel grow after recent ‘bad press’

Nickel has continued to be the center of attention across the base metals market, with recent headlines involving fraud accusations and invalidated warrants.

This all follows the chaos of the suspension of the London Metal Exchange nickel contract on March 8, 2022.

“Right now, it seems that people want to get out of nickel [spot trading],” a United States-based trader told Fastmarkets.

“In terms of sitting on it, it is not giving anyone a great return. People are running away from it rather than towards it.”

“There’s a feeling if you found this nickel that was rocks, there’s an overhang of nervousness from the big [consumers], they only want to buy from producers and on long-term deals,” the trader added.

Participants have told Fastmarkets that there is a growing concern that financing for spot trades of nickel could become more difficult to achieve.

“There is a lot more behind the scenes that you have to consider now – not just that it is a high-value LME metal and a lot more risk to the trade,” a market source said.

Compounding this issue, the forward curve for nickel on the LME has remained in a persistent contango since March 4, 2022.

The nickel cash-to-three-month spread was trading at $195 per tonne contango on Thursday April 13, a steep increase from $73 per tonne contango a year prior.

“If there’s one thing the nickel market doesn’t need, it’s more bad press,” a European trader said.

“We could get to the point where banks just see risks [with nickel],” a third trader said, adding that they believed “banks could reduce their credit lines for nickel, or demand more proof or higher collateral in order to protect investments.”

Another key factor – which is not just a problem for the nickel market – is that high interest rates are also making financing more difficult.

Fastmarkets previously reported that this is a key theme being seen in the copper market, with some copper fabricators selling at extremely reduced levels to move stock and reduce financing costs.

The potential effects of higher financing costs or reduced credit lines would ultimately be reflected in premiums for refined nickel products, which are already trading above historic highs in Europe and in the US.

“Financing is already a burden due to the current inflation rates,” a producer source said.

Fastmarkets assessed the nickel briquette premium, in-whs Rotterdam at $380-650 per tonne on April 11, while the nickel briquette premium, delivered Midwest US was assessed at 80-100 cents per lb on the same day.

While both premiums have come off from their historic highs achieved in 2022 following the physical market volatility stemming from the Russian invasion of Ukraine as well as the LME contract suspension, both premiums remain considerably higher than historic averages as participants grapple with tight availability of Class 1 units.

“In the last few months, it would be fair to say prices have stayed high due to the costs of financing,” a fourth trader said.

Despite growing concern among some in the industry, other participants told Fastmarkets that there had been limited impact so far from the recent headlines.

One leading indicator of the impact of closed credit lines is often distress selling, where participants are forced to destock. But participants noted that this had not yet been seen in the nickel market.

Instead, they pointed out that rather than withdrawing credit lines or financing, creditors were changing their risk management approach.

“I wouldn’t say there’s been a withdrawal of financing from nickel,” the producer source said. “It’s more a case of increased due diligence on the part of the financiers, ensuring they have the security and insurance required.”

Participants highlighted more frequent inspection of units involved in spot transactions as well as improved documentation are all measures being taken within the market.

Some financiers even saw the current dynamics as an opportunity.

“It’s quite exciting for us,” one financer said. “Other creditors leaving the space enables us to be more aggressive and access better quality partners and counterparts.”

Keep up to date with the latest news and insights on our dedicated battery materials market page.