Nickel the talk of the town at LME Week 2022

Battery materials, specifically nickel, dominated many conversations during LME Week 2022

“This feels like nickel’s LME Week,” a trader told Fastmarkets as the global base metals industry assembled in London on October 24, with nickel dominating many conversations.

While in many ways participants across the market noted that LME Week felt as if it had “returned to normal,” in 2022 following two coronavirus-disrupted years, the prominence of nickel in discussions had increased significantly.

“All of a sudden, we’re very in demand,” a nickel producer source told Fastmarkets.

This year has been a volatile one for the nickel market, with trading of the London Metal Exchange’s nickel contract suspended for much of March, significant concerns over supply from Russia on top of a growing class two nickel market.

“Nickel is going through a major transition at the moment; people are very interested to know what’s going on,” a physical market trader said.

“It’s definitely been a busy year,” an options trader told Fastmarkets. “All our clients are interested in nickel right now, they all want to know what’s happening with the [LME] contract.”

Though there was much discussion around nickel broadly, Fastmarkets understands contract discussions were not as prevalent. While LME Week is historically the starting point for many in annual contract negotiations for nickel, there was a sense of quiet in this regard, with many unclear on the direction of the market for 2022.

MHP front and center

Fastmarkets launched its new nickel mixed-hydroxide-precipitate (MHP) price on October 28 after a year where attention on the intermediate nickel product had grown globally.

Conversations around MHP were not exclusive to end users and nickel sulfate producers though, with participants in the cobalt market said to be closely monitoring the developments of MHP as a potential competitor for supply in the cobalt hydroxide market.

There is significant excitement around the increased production of MHP, with consumers seeing it as a crucial part of the battery raw materials supply chain going forward.

A consumer told Fastmarkets that MHP is important to their supply strategy because it comes “close to ready-made” for pre-cathode active material due to its balance of nickel, cobalt and manganese, ideal for nickel-cobalt-manganese cathode manufacturers.

Fastmarkets calculated the nickel mixed-hydroxide-precipitate payable indicator, % London Metal Exchange, cif China, Japan and Korea at 75-78% on October 28.

Pricing alternatives key priority for the market

Much of the discussions in the nickel market centered around arguably the key topic of 2022 for nickel, price.

Volatility has been seen in nickel prices across the full suite of products, from class two markets like ferro-nickel and nickel pig iron to the physical spot premiums for LME deliverable material.

With production of nickel set to grow exponentially in the coming years, and customers in China moving their preference to intermediary nickel products for some industries, participants globally are looking for pricing alternatives to traditional mechanisms.

Historically, many of these class two nickel products have been traded basis payables on the underlying LME nickel price. But, as a result of the recent volatility in LME prices, participants reported a notable shift from historic business practices.

“We are seeing more products traded on a fixed price basis to avoid risk or using alternative underlying terms such as the Shanghai Futures Exchange,” a market source said.

There has been no confirmation reported to Fastmarkets of this move to using the SHFE as the underlying basis, primarily due to the reluctance of non-Chinese participants to adopt it due to a lack of access.

To meet this growing need for price transparency, Fastmarkets has expanded its pricing coverage of the nickel market to include a MHP price, with the first assessment published on October 28.

LME explores nickel sulfate and hints return to Asian trading hours

LME chief executive officer, Matt Chamberlain, addressed the nickel contract and the exchange’s stance on the nickel market during his speech at the annual LME Week dinner on October 25.

Addressing the “pain” expressed by some participants in the aftermath of the contract’s suspension, Chamberlain said, “We understand just how many players rely on the LME’s nickel contract, and the difficulties posed if that market is closed.”

“The LME remains committed to its nickel contract, we know of course that the process of rebuilding confidence is a long one, and it involves many trade-offs,” he added.

The LME has previously said that its priority was to rebuild trust following the events in the nickel market in March, and it has implemented a series of measures to maintain market order, including the promotion of greater over-the-counter transparency for the market.

Addressing the potential to resume trading of the nickel contract during Asian trading hours, Chamberlain said that the exchange would “continue to finalize [their] framework” and that a fuller update for the market is expected in November.

The three-month nickel contract currently trades from 08:00 to 19:00 UK time, a period significantly shorter than for other metals, which begin trading at 01:00 UK time.

Notably, Chamberlain also said that the exchange was exploring the potential to launch additional contracts for class two products or nickel sulfate.

“I hear too the calls for the LME to launch a class two, or nickel sulfate contract, given the well-documented thesis of the uncoupling of different nickel forms in the market,” Chamberlain stated.

“While we have spent many hours on this topic and continue to do so, we can only proceed with that if we’re confident the pricing basis for such a contract is entirely robust, fair and transparent,”

Attention around nickel sulfate pricing has increased steadily over the course of 2022 in anticipation for the increase in demand. Fastmarkets has shifted its international nickel sulfate price assessments from monthly to weekly in response to this.

Concerns over cathode supply build

Though supply concerns for the nickel market broadly have eased globally, with surpluses in supply forecast for 2022 and 2023, some participants highlighted concerns over the availability of nickel cathodes, particularly for the European market.

“Cathodes look like a real pinch point,” a fourth trader told Fastmarkets.

Russian miner Nornickel is one of the largest cathode producers globally, and a key supplier to the European market. But participants are reportedly monitoring a discussion paper on the acceptability of Russian origin materials on the LME and the potential sanctions.

“If Russian cathodes do not actively flow in Europe, we could see a real shortage of supply,” the fourth trader said. “Consumers have a right to be concerned.”

Nickel 4x4 cathode spot premiums are currently the highest in Europe, supported by persistent tight supply in the region along with high cutting and packaging costs.

Fastmarkets assessed the nickel 4x4 cathode premium, in-whs Rotterdam at $900-1,300 per tonne on November 1, unchanged from a week earlier but up from $220-290 per tonne at the start of the year.

To keep up to date with the latest news and insights in the nickel market, visit our dedicated nickel market page.

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