LME WEEK 2019: Nickel fundamentals and forecast
Nickel demand has a very bright future.
Nickel tends to have above-average demand growth compared with other base metals since it is growing market share, with more users looking at the life-cycle costs of using stainless steel, which accounts for around 70% of nickel use.
But the exciting development for the nickel market is just how fast demand is set to grow from the lithium-ion battery industry. Demand for batteries is expected to rise to around 500,000 tonnes by 2025 from around 100,000 tonnes in 2018.
The important takeaway from this is that the extra nickel required for batteries will be on top of that required to feed the already fast-growing stainless steel market.
But with batteries accounting for only 6% of nickel output at present, the stainless steel sector is the likelier trendsetter. Indonesia bringing forward its ban on ore exports is seen as long-term price bullish but it may be medium-term negative.
Indonesian nickel producers are likely to produce and export as much ore as they can in the September to December period ahead of the ban; Chinese nickel pig iron (NPI) producers are likely to be willing buyers while they build up stockpiles. Good supply and availability in the weeks and months ahead are expected to cause prices to retreat.
Supply is likely to tighten later in 2020. The degree to which it does so will depend on how fast Indonesia has been able to ramp up new NPI production, how easy it will be to export either NPI or stainless steel to China, and how quickly the Philippines and New Caledonia can ramp up output and exports to China too.
With rapidly growing demand set to come from the battery industry, higher nickel prices are needed now to ensure investment is made in plants that can provide nickel sulfate. At present, with traditional sulfide mining at best flat, the new nickel units suitable for the battery industry are likely to come from high pressure acid leach (HPAL)
operations. But many earlier HPAL projects have had checkered histories and have struggled to reach nameplate capacity - most have suffered large cost overruns and there have been long delays in bringing new capacity onstream. If the next generation of HPAL plants suffers a similar fate, the danger of shortages of the right type of nickel to feed the battery industry grows, increasing the competition, and there will be increased completion for class 1 nickel.
Increased competition is likely to result in consumers chasing prices higher. We do not see any real shortage of class 1 nickel in 2020 but strategic buying may emerge sooner rather than later, especially into any price weakness
LME nickel cash price, $/t
2019 forecast average price
2020 forecast average price