It is reassuring to see a metal price driven by good old fundamentals.
With so much buzz around supercycles and electrification, the impact of the speculative element in pricing has been much in evidence this year for products like copper and oil.
But according to a recent Reuters post, solid supply and demand fundamentals are driving nickel.
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Supply and demand fundamentals pushing nickel prices
A strong rise in the nickel price early this year resulted in the three-month LME quotation hitting a seven-year high of over $20,000 per ton before crashing back to $15,665 during the first half of March. Announcements by Tangshan Stainless in Indonesia that it would switch production of its refined nickel output to an EV cathode battery chemistry undermined the presumption of a looming shortfall in battery quality metal.
The narrative has since moved from nickel being a tight battery grade metal market to simply a tight refined metal market.
The World Bureau of Metal Statistics reported this month that the nickel market was in deficit the January to May 2021 period. Apparent demand exceeded production by 42.7 kt. That compared to an admittedly COVID-pandemic-hit 2020 surplus of 92.7 kt.
Futures exchange spreads and stock levels have supported the tight market picture. The cash to 3-months LME price has been flirting with backwardation. Stock levels are falling from an April peak. Futures exchange activity is also giving us clear direction on what is driving nickel demand.
SHFE stainless steel surges ahead
The SHFE stainless steel contract has just overtaken the hot rolled steel coil contract as the best performer within the domestic steel complex, Reuters observes. China’s stainless output surged by 19% year over year in the fourth quarter of last year and by 37% in the first three months of 2021, according to the International Stainless Steel Forum.
Interestingly, though, while China may be leading the wider metals market recovery this year, stainless production in the rest of the world has also been enjoying a sharp recovery of 12% in the first quarter.
As a result, global nickel usage has jumped by 23% in the first five months of 2021 relative to last year, according to INSG data. INSG’s latest assessments suggest a global market supply deficit of 61,200 tonnes in January-May, Reuters reports, almost 50% higher than the WBMS assessments.
But the story is not all about robust demand.
At the same time, the supply side has been severely constrained, despite Indonesia’s mined and refined nickel output growing by 47% and 55%, respectively, from January-May. That has underpinned a 9% rise in global primary production that has been restrained by deficits at other key suppliers.
Russia’s Norilsk Nickel reported a fall of 28,000 tons, or 26%, in first-half production following the flooding of two mines in March this year, the post reports. Output remained capped at around 80% until well into Q4, as repair work is undertaken.
Meanwhile, the post reports U.S. nickel buyers are facing a double whammy with a key local supplier — Vale’s Sudbury operations in Ontario — closed due to strike action since the start of June. That has led to a 15% year-over-year slide in output. Temporary closures at Glencore’s PNG nickel plant and the slow recovery of Madagascar’s Ambotovy mine are adding to supply shortfalls.
Nickel prices on the rise
Not surprisingly, nickel prices have gradually clawed back ground lost since March. Furthermore, nickel has largely shrugged off the sideways trading of the major base metals.
Physical demand has created mounting pressure on exchange stocks and prices. Providing Vale’s Sudbury strike isn’t a repeat of its yearlong lockout in 2009 and Indonesia’s ramp-up continues, supply shortages may ease toward the year’s end.
However, much will also depend on a moderation in demand from the stainless sector. That is a development that has not, up to now, been in evidence.
Does your company have a stainless buying strategy based on current nickel price trends?