Nickel drives stainless prices, even as LME stocks rise

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Stainless steel producers have been caught in a pincer movement over the last year of rising nickel prices but falling demand.

It is a counterintuitive situation until you factor in China’s stainless production. Chinese output rose by 4% in the third quarter of last year compared to the rest of the world, which fell by 9%. The disconnect between China and the rest of the world is driving a complex dynamic in the nickel market.

The result is rising LME inventory of refined metal while, at the same time, prices are pushing close to 17-month highs at $18,675 per metric ton, Reuters reported.

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China’s history of nickel imports

Historically, when China’s stainless producers are running hot they suck in refined nickel imports (much as they have done over the last year on aluminium and copper).

But in nickel’s case, the imports are booming for raw materials, nickel pig iron (NPI) and ferro nickel (FeNi), due in large part to Indonesia’s export ban on ores and the resulting investment made in NPI production in Indonesia by Chinese producers.

China’s imports of NPI and FeNi have boomed. Imports totaled 3.4 million tons in 2020, up 80% from 2019. Indonesia made up the lion’s share of those imports. China imported 600,000 tons from the country in 2018 and 2.7 million tons in 2020.

Ores and concentrates, by comparison, have fallen with the Philippines and New Caledonia unable to make up the shortfall. As such, imports have slumped by 30%.

Stainless drives nickel consumption

Despite the hype around electrification and battery demand, the stainless industry remains the primary driver of nickel consumption.

Nickel sulphate is used in battery production. China’s imports of nickel sulphate are up an impressive 30%. Total imports, however, were still only a modest 5,600 tons last year.

Investor appetite, though, is being fed by a longer-term vision supported in research sources quoted by Reuters suggesting demand from the battery sector could increase from 92,000 tons in 2020 to 2.6 million tons in 2040.

Whether that will translate into nickel testing its historic highs of nearly $50,000 per ton set back in the spring of 2007 is highly unlikely. That 2007 peak lasted a matter of weeks before coming back down just as precipitously as it rose, not least of which because investors take profits in the knowledge technological developments will negate such high prices in short order.

Nickel prices could experience a similar trend today. As Reuters points out, the battery supply chain sector is already experimenting with the development of direct ore to sulphate production. That would undermine the current use of refined nickel briquettes as the raw material of choice. As a result, that would remove a significant plank of support for the refined nickel price on the LME.

The trend line for the nickel price has been impressive over the last nine months. It stands in stark contrast to 2019 as this graph courtesy of StoneX illustrates.

Looking ahead

Nickel’s low point last year was only mildly depressed by the pandemic. The nickel price had been falling for much of the previous six months, as it became clear Indonesia’s NPI producers were ramping up shipment of the intermediate and nickel supplies, generally, were adequate.

The current rise looks a lot like the early part of 2019. However, look what happened to the price in the second half of 2019 (it came plunging back down).

While we are not predicting a similar collapse, some easing from current near $19,000 per metric ton levels is likely in 2021.

As the saying goes, the risk is to the downside.

Find more insight on MetalMiner’s LinkedIn.

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