Market Analysis

Inventory drawdown is the defining narrative at the moment, and nickel is part of the story.

nickel price

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Economic recovery around the world is patchy. Some countries are recovering strongly, while some are still struggling. Inflation is surging and analysts are having trouble agreeing whether 2022 can see anything like 2021’s rate of growth as a result.

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But one area of near universal concern is dwindling exchange and trade inventory stock levels.


Nickel stockpiles fall

Take nickel, for example. Nickel stockpiles on the London Metal Exchange recently fell for the 51st straight day, a Financial Times post reports. Meanwhile, in China, nickel stocks in official warehouses are close to a record low at just 4,859 metric tons. Aluminum inventories are a fraction of levels held two years ago. U.S. crude inventories fell to their lowest levels since October 2018.

While the oil market is broadly in balance, both nickel and aluminum are in deficit.

According to the Financial Times, nickel registered a supply-demand deficit of around 180,000 tons last year. That is equal to approximately 6% of its total market size. Not surprisingly, nickel prices have been driven higher both by industrial metals demand and investor speculation.

Nickel demand in EVs

Stainless demand remains strong but investors are more excited by the long-awaited ramp-up in electric vehicle demand.

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Human and political rights activists have been suffering escalating repression in the former Soviet state of Kazakhstan. The result has been widespread rioting and the reported death of over a hundred protestors this month.

map of Kazakhstan

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The protests kicked off with rises in liquefied petroleum gas (LPG) prices but stem from extreme inequality and corruption in the Central Asian nation. There seems to be a state of calm after Russian forces entered the capital under the auspices of the Collective Security Treaty Organization bloc, consisting of some 2,000 troops and 250 units of military equipment.

Reports last week suggest those troops could be heading home later in the month. However, whether that will result in an end to the unrest or the return of people to the streets is unclear.

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How has Kazakhstan unrest impacted metals prices?

For metals markets, the riots raised anxiety over supply but offered no more than modest support to prices.

The events there have not had a significant impact on mining operations. However, the fact Kazakhstan is such a large ore and refined metal producer, metals prices could react further if the riots spread to become a national strike.

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In line with India’s commitment at the COP26 summit in Glasgow last year, the country aims to reach net-zero by 2070.

Furthermore, India seeks to meet 50% of its energy needs by 2030 through renewable sources and expand non-fossil fuel power generation capacity to 500 GW in this decade.

In light of these targets, the Government of India (GoI) has approved a multibillion dollar plan of setting up transmission projects for power supply from these renewable energy projects.

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Setting up ‘green energy corridors’


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India is setting up “green energy corridors” in two phases.

“The Green Energy Corridor Project aims at synchronizing electricity produced from renewable sources, such as solar and wind, with conventional power stations in the grid,” India’s Ministry of New and Renewable Energy says on its website.

One phase will supply 20 gigawatt (GW) of renewable energy to the national grid, the Hindustan Times reported.

Furthermore, the country is in the process of building 63 GW of renewable energy capacity, according to the report. Installed non-fossil fuel power capacity is expected to increase by 66% by 2030.

According to ratings agency ICRA, India’s renewable energy generation capacity will increase by 16 GW in fiscal year 2023.

India aims to cut projected emissions of carbon will by 1 billion tons by 2030.

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The Raw Steels Monthly Metals Index (MMI) rose by 12.7% month over month to 121, as scrap prices made gains this past month.

January 2022 Raw Steels MMI chart

U.S. steel prices continue to retreat from their 2021 peaks. At the start of the year, hot rolled coil prices sat almost 18% below the October high.

US steelmakers invest in scrap processing

As electric arc furnace (EAF) capacity expands, U.S. steelmakers are working to secure steel scrap supply, as the Wall Street Journal explained in a recent report.

In November, Cleveland-Cliffs purchased Ferrous Processing & Trading Co. for $775 million. The company represents 15% of the U.S. prime market. As Cleveland-Cliffs is the largest steel supplier to the auto sector, the acquisition will allow Cleveland-Cliffs to negotiate scrap collection from its own customers.

Also in November, North Star BlueScope purchased steel-scrap processing operations and the Delta Yard for $240 million from MetalX.

These recent purchases follow Nucor’s own acquisitions of both Garden Street Iron and Metal Inc. and Grossman Iron and Steel Co. Nucor currently operates 65 scrapyards. Its newest additions will serve to feed its forthcoming or expanding mills.

In total, investments from top steelmakers in scrap processors exceeded $1 billion in 2021.

EAFs, which are fed by scrap, currently account for roughly 70% of U.S. steel production. That share is expected to grow in the coming year as even more capacity comes online. Around 8 million tons of flat-rolled steel capacity was added over the past few years and an additional 10 million tons will be added by the end of 2024. North Star BlueScope alone will grow its own steel capacity by around 40% in 2022.

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The Renewables Monthly Metals Index (MMI) rose by 2.9% for this month’s reading.

January 2022 Renewables MMI chart

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EIA: electricity generation from renewables to rise in 2022, 2023

The Energy Information Administration forecast the U.S. share of electricity generation from renewables will rise in 2022 and 2023.

“Our forecast for the natural gas share as a generation fuel declines primarily as a result of increased generation from new renewable energy generating capacity,” the EIA reported in its Short-Term Energy Outlook released Jan. 6.

The EIA forecast solar capacity growing at a faster rate than wind. Furthermore, the EIA forecast an uptick in hydropower.

“The extreme drought conditions in the West may moderate somewhat in the next year, and we forecast that the share of U.S. generation from hydropower will rise from 6% in 2021 to 7% in 2022 and 2023,” the EIA reported.

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The Global Precious Monthly Metals Index (MMI) rose by 4.1% for this month’s reading.

January 2022 Global Precious MMI chart

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Gold prices make gains to close 2021

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Gold prices picked up steam throughout the final month of 2021.

The U.S. gold spot price opened December at $1,774 per troy ounce, according to MetalMiner Insights data (MetalMiner Insights added a precious metals suite last year). The price rose to $1,818 per troy ounce to close the year.

Since then, the price has continued to rise, reaching $1,825 per troy ounce last week.

Meanwhile, the U.S. dollar, which typically has an inverse relationship with gold, moved mostly sideways in December. After opening December at just over 96, the U.S. dollar index fell marginally to just under 96.

Treasury yield rates rise in December

Elsewhere, U.S. Treasury yield curve rates picked up in December.

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Nickel, traditionally largely consumed in the stainless steel industry, is enjoying strong support from its role as a lithium-ion battery enhancing metal.

The use of nickel reduces the need for cobalt, significantly battery reducing costs. Not surprisingly car makers are scrambling to lock up supplies as Chinese battery firms get first to market investing in mines and refining.

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BHP signs Tesla supply deal

nickel price

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BHP, for example, signed a deal last year to supply Tesla with nickel from its west Australian mine as demand from the EV market finally — after years of promise but poor uptake — begins to ramp up.

Traditionally, the stainless market has demanded purity and price. However, the battery market is also demanding as low a carbon footprint as possible from all its material suppliers (aluminum, nickel, cobalt, etc.).

That, in part, is what is behind BHP’s investment in a small, London-based nickel miner Kabanga Nickel Ltd.

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The Rare Earths Monthly Metals Index (MMI) rose by 1.7% for this month’s reading.

January 2022 Rare Earths MMI chart

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China consolidates trio of rare earths units

As Beijing has sought to control its domestic metals production in the form of state-directed company consolidation, it has also done so in the rare earths sector.

According to the state-run Xinhua, China established the China Rare Earth Group Co., Ltd. late last month in the country’s Jiangxi province.

Aluminum Corporation of China, China Minmetals Corporation and Ganzhou Rare Earth Group Co., Ltd. established the new company jointly.

Companies aim to develop REE-making technology

Last month, Energy Fuels Inc., the U.S.’s top producer of uranium, announced a memorandum of understanding with Nanoscale Powders LLC to develop novel technology for the production of rare earth element metals.

“We believe this Technology, which was initially developed by NSP, and will be advanced by the Company and NSP working together, has the potential to revolutionize the rare earth metal making industry by reducing costs of production, reducing energy consumption, and significantly reducing greenhouse gas emissions,” Energy Fuels said in its announcement. “Producing REE metals and alloys is a key step in a fully integrated REE supply chain, after production of separated REE oxides and before the manufacture of neodymium iron boron magnets used in electric vehicles, wind generation and other clean energy and advanced technologies.”

Among its other operations, Energy Fuels produces mixed rare earth element carbonate. It also recovers uranium from natural monazite sands.

“The Company is also moving quickly toward producing REE Oxides at the Mill using proven solvent extraction technologies,” the firm added. “The Mill has over 40 years of experience producing uranium and vanadium oxides using SX technology.”

Companies, industry groups weigh in on Section 232 neodymium magnet probe

Last September, the Department of Commerce announced the initiation of a Section 232 investigation covering neodymium magnets.

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The Copper Monthly Metals Index (MMI) rose 0.8% for this month’s reading.

January 2022 Copper MMI chart

Copper prices continue to trade sideways within a big time frame, a resistance and support channel.

While prices have consolidated within the channel, there are certain points of interest marked as key levels that would indicate a macro bullish continuation or macro reversal to the downside.

As such, no significant direction in price is clear. More bullish actions need to occur to confirm an  upside.

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Market pays close attention to Fed

Market sentiment continues to be swayed by the Federal Reserve.

After inflation reached 6.8% in November, the fastest pace since 1982, the Fed announced after its mid-December meeting it would double the pace of its tapering of quantitative easing measures put in place at the dawn of the pandemic. Beginning in January, the Fed scaled back bond purchases to $60 billion each month. Additionally, officials projected at least three quarter-percentage point rate hikes throughout 2022.

The announcement spurred LME copper prices to hit a two-month low Dec. 15. As prices descended, LME trading volumes spiked.

Prices recovered from the dip but faltered once again upon the release of the Federal Reserve’s meeting minutes. Amid persistent, rising inflation, a stronger economic outlook and “tighter” labor market, members suggested “it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”

Additionally, members considered the reduction of Treasury holdings and mortgage-backed securities. The prospect of impending rate hikes and hawkish policy shifts saw LME copper prices, once again, fall Jan. 5-6 as trading volumes picked up on the descent.

While the Fed began to scale back its asset purchases in January, uncertainty still lingers regarding the implementation and quantity of rate hikes. As copper prices have a historically inverse relationship with the U.S. dollar, the Fed’s efforts to address inflation will add downward momentum to copper prices. The Fed will reconvene Jan. 25-26.

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The Stainless Monthly Metals Index (MMI) rose by 1.8% month over month.

January 2022 Stainless MMI chart

Although nickel edged up slowly in price, it squeezed into a wedge that is susceptible to big time frame resistance. Prices continue to consolidate within an October-November 2021 high-low price range.

A continuation to the upside with more volume from the bulls could push prices even further. Lower volume, however, could lead to price breakdowns in Q1 2022.

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A&T Stainless petitions for tariff exclusion

U.S. flat-rolled stainless supply is expected to be constrained in 2022.

However, there may be some light at the end of the tunnel.

A&T Stainless, the joint venture between Allegheny Technologies (ATI) and China’s Tsingshan, has filed a new petition with the U.S. Department of Commerce for a tariff exclusion to import 304L and 316L hot-band coils from Indonesia.

In May 2018, Katie Benchina Olsen, MetalMiner’s senior stainless analyst, examined whether A&T Stainless should be granted an exemption. At the time, NAS and Outokumpu argued that they could supply slab to A&T Stainless. The exemption was denied.

The 2022 market is different because NAS, Outokumpu and Cleveland-Cliffs are all full capacity and have customers on strict allocation.

Approval would advance capacity

If the exemption is granted, A&T Stainless would restart the Direct Roll Anneal and Pickle (DRAP) line in Midland, Pennsylvania. The line would produce about 20,000 tons a month of thicknesses .048″ and heavier. If the DOC approves the request, the DRAP line would take several weeks to start up.

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