FOCUS: LME nickel price soars to 2017 high on rising stainless, battery demand

The three-month nickel price on the London Metal Exchange hit its highest level so far this year on Monday August 21 at $11,270 per tonne, with the rise attributed to stronger demand from the stainless steel and battery sectors and environmental controls affecting supply in China.

The three-month nickel price touched $11,270 per tonne at 09:00 BST, its highest since December 19, 2016, before falling to $11,235 at 14:55 BST.

“Unexpectedly better consumption of nickel in the stainless steel and battery sectors in the third quarter is the key driving force in the nickel price rally,” China Merchant Futures senior nickel analyst Xia Peng said.

“In the first half of 2017, 300 series stainless steel production declined, creating a shortage of 300 series stainless steel in the third quarter. But China’s 300 series stainless steel production and marketing are still thriving,” China’s Galaxy Futures senior nickel analyst Lin Kaiwei said in a note.

The production of 300 series stainless steel normally accounts for half of China’s total stainless steel output. Also known as austenitic stainless steel, it contains more nickel than 200 series and 400 series steel.

Metal Bulletin’s assessment for benchmark 304 stainless cold rolled coil (CRC) prices was 15,400-15,800 yuan ($2,307-2,367) per tonne including VAT in the major market of Wuxi in the week ended Thursday August 17, up 28% from 11,800-12,500 yuan per tonne on June 15. 

“China’s stainless steel mills have been fully operational but Wuxi and Foshan stainless steel inventories are still at a low level and are not picking up,” Lin added.

“Stainless steel inventories in Wuxi and Foshan stood at 288.1kt in June. This is extremely low so it boosted stainless steel prices in the middle of June,” a senior nickel analyst from a hedge fund based in Shanghai said.

“On August 18, stainless steel inventories in Wuxi and Foshan were at 286.7kt, meaning that, two months after becoming fully operational, stainless steel inventories still haven’t picked up. This proves stainless steel’s downstream demand is becoming better,” the hedge fund analyst added.

Investors take Wuxi and Foshan stainless steel inventory as a main indicator of strong downstream demand for stainless steel in July to September this year.

China’s stainless steel production is expected to remain strong in this period as higher prices and better profit mean more orders are booked.

Battery demand in the spotlight
In addition to increasing demand for nickel from a robust stainless steel sector, nickel consumption in the battery sector has drawn much attention from investors recently.

“Growing electric vehicle production and battery storage deployment in the coming years will lead to an oversupplied global market, which will eventually tighten as nickel remains an important component of batteries moving forward,” BMI Research said in its report on Friday August 18.

“For example, Glencore expects battery-led nickel demand to increase from approximately 60kt presently to over 150kt in the next five years, while UBS believe there may be a rise of 10-40% from current levels depending on efforts to replace cobalt with nickel within cathodes in lithium-ion batteries,” BMI Research cited in its report.

“However, with restrictions on raw material and high costs, the volume of nickel sulphate being added to the supply side may be lower than expected. The possible shortage of nickel sulphate could also be a hot topic as market hype may push nickel prices higher,” Galaxy Futures added in Monday’s daily notes.

Moreover, on the supply side, Chinese environmental inspections are restricting the resumption of nickel pig iron, despite the higher nickel price.

In the traditional nickel pig iron (NPI) production hub of Inner Mongolia, it is difficult to resume more NPI production at the current 955 yuan per nickel unit because of its higher cost as a result of China’s stricter environmental regulations on smelters. The situation is similar in other NPI production areas in China.

Nickel usually correlates with ferrous prices more than other base metal prices do. Today’s iron and steel prices on the Dalian Commodities Exchange rallied, with the most traded iron ore price closing at 596 yuan per tonne, up 6.62% compared with the previous close.

The most traded January nickel contract on the Shanghai Futures Exchange closed at 91,030 yuan ($13,647) per tonne on Monday August 21. This was its highest level since the end of February, a rise of 3.87% on the last close.

Metal Bulletin and Industrial Minerals are hosting a webinar on October 10 to discuss the battery raw materials market and the Li-ion boom. Join the discussion and register here.

See also: 
FOCUS: Tight supply pushes Chinese nickel full-plate premiums to historic high