Nickel bulls go wild, but for how long?
The nickel market has come under the spotlight in recent days with continuing surges both on the London Metal Exchange and the Shanghai Futures Exchange, with the latter rising to its upward limit on Thursday January 20.
But how long will nickel’s price strength last, with investors in China and the wider Asian market all preparing for the upcoming Lunar New Year holiday from January 31 until February 4?
Bullish sentiment underpinned by low stocks
Nickel prices will stay elevated amid bullish sentiment in the short term because global nickel inventories have fallen to a critically low level, and this has been widely seen as one of main factors buoying up market sentiment.
“Investors are flowing in on tight supplies, a rosy outlook for the electric vehicle (EV) market and other triggers - including the suspension of production at one ferro-nickel plant in Myanmar and talks of Indonesia’s possible export rate on ferro-nickel/nickel pig iron,” ITG Futures senior non-ferrous analyst Xie Ling said.
“China’s Lunar New Year holiday is around the corner and a price correction is possible after the recent spike [amid] off-risk sentiment before the holiday. [And] on the LME, the market will respond to movements on the SHFE due to high correlation between the two [exchanges], so the nickel price is likely to hover at highs during the holiday, [assuming] no major changes in stocks or [other] big news.”
During the 2021 Lunar New Year holiday last February, LME nickel largely traded above $18,000 per tonne, closing at $18,704 per tonne at the end of the break on February 17, up by 1.2% from $18,484 per tonne at the start of the holiday on February 10.
Then in early March 2021, the nickel market was badly affected by Tsingshan’s announcement that it would start to supply nickel matte converted from nickel pig iron (NPI), which sent LME nickel down by 12.4% and SHFE nickel down by 12.2% in the week to March 5.
But Fastmarkets analyst Boris Mikanikrezai said the recent nickel price surge is pointing to a bullish market structure.
“Nickel prices have made a higher high in the first quarter thanks to the robust fundamentals and despite the uncertain macro backdrop. And while nickel prices have already rallied strongly so far this year, we think that the rally can continue because the positive momentum will remain for some time.
LME nickel stocks totaled at 94,830 tonnes on January 20, their lowest level since late 2019, and SHFE inventories were 4,711 tonnes on January 14, the their lowest level since October 2019.
The constrained availability on the exchanges has triggered a big spike in nickel spreads on the LME, with the exchange keeping an eye on the situation, although no action taken as yet.
In October 2021, however, the LME did roll out temporary rules to control copper prices following a record-breaking backwardation of more than $1,000 per tonne in the cash/three-month spread.
As one of world’s top suppliers of nickel, Indonesia has again come under the spotlight following recent talk of a possible tax on exports of ferro-nickel/NPI this year, several sources told Fastmarkets.
“There is market talk about the export rate [and], for now, the country’s stainless steel capacity is not enough to consume all produced ferro-nickel/NPI, but should be no big surprise to see an export tax in place on ferro-nickel/NPI after its success in attracting investment to the domestic nickel industry following its ban on nickel ore exports,” a Shanghai-based nickel trader said.
He said the nickel market would receive further support if such a rate is introduced because it will increase product costs.
Indonesia started its ban on nickel ore exports from 2020, and due to lack of nickel ore resources in China, many Chinese firms have flocked to the country to make investments in ferro-nickel/NPI projects (not subject to the ban), which are fed by local nickel ores, with most of Indonesia’s nickel products going to China.
China imported 3.73 million tonnes of ferro-nickel/NPI in 2021, up 8.2% year on year, with Indonesian materials totaling 3.14 million tonnes or 84.3% of the total, according to China customs data.
With EV market booming, China’s investment on battery raw materials in the country has also accelerated, including Lygend Mining, and Huayou Cobalt ’s mixed hydroxide precipitate (MHP) projects there.
Fastmarkets’ price assessment for nickel pig iron, high-grade NPI content, 10-15%, spot, ddp China, was 1,370-1,420 ($216-224) per tonne on January 21, up by 10-30 yuan per tonne from 1,360-1,390 yuan per tonne a week earlier.
Fastmarkets’ monthly assessment of the ferro-nickel premium/discount, 26-32% Ni contained, cif China was at a discount of $300-700 per tonne on December 29, compared with ranging from a discount of $300 per tonne to a premium of $100 per tonne on November 29.
Fastmarkets’ price assessment for nickel sulfate min 21%, max 22.5%; cobalt 10ppm max, exw China was 37,500-38,500 yuan per tonne on January 21, up by 1,500 yuan from 36,000-37,000 yuan per tonne a week earlier.