The nickel market first experiences a surplus, then supply fears

leszekglasner/Adobe Stock

Several apparently contradictory recent articles have reported the rise in nickel prices following supply disruptions to miners as a result of the spread of the coronavirus.
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Reuters reported that just a few weeks ago market surpluses were expected. In a recent poll of analysts, the median nickel market balance forecast for this year was a surplus of 89,000 tons, while Russian producer Norilsk Nickel last week came out with an even heftier surplus estimate of 149,000 tons.

Yet demand destruction is matched only by supply disruption, with the Philippines’ forcing the closure of major mines in the southern province of Surigao del Norte — home of the country’s biggest exporter, Nickel Asia — following the outbreak of COVID-19 cases in the area.
Export of ore from neighboring Indonesia was already on hold as the country followed through earlier this year to force local refining to nickel pig iron (NPI) or refined nickel, banning ore or concentrate exports. The move raised fears that world leader China could be starved of nickel supply as the country gradually ramps up stainless production again after the New Year and subsequent virus lockdowns.
LME nickel prices have lifted from a low of below $11,000 per ton in March to over $12,000 but seem to have plateaued for now as the market tries to assess which will be more severe – supply tightness or weak demand.
Stainless production is coming back in China and state support is in place to aid producers, even if demand for finished product is weak. Some degree of stainless stockpiling means nickel demand is likely to remain on the rise.
Nickel supply, on the other hand, is definitely constrained from Indonesia, which is struggling to ramp up output of refined metal and from the Philippines (which is, at least for now, shut down). China’s NPI port stocks are low, SHFE stocks of refined nickel have fallen by 25% this year and LME inventory, while rising in the early part of the last quarter, has now plateaued, Reuters reports. All this suggests raw material supply is not abundant and estimations of surpluses, while still possible if mine restrictions are lifted, appear to be optimistic for the time being.
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It is almost impossible to judge in such uncertain situations if the next move will be up or down as so much depends on day-to-day decisions taken in capitals around the world, not by the markets or producers and consumers themselves.
The balance of risk seems probably more on the upside than down.

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