By most accounts, nickel has had a good run this year.
Among a falling commodity market, nickel has been one of only a couple of metals products that have bucked the trend and seen strong gains. Nickel has jumped some 35% this year, largely on the back of supply-side fears.
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The Indonesian minister for mines announcement of the country’s intention to ban nickel ore exports from 2020 and falling LME stocks – maybe as a result of those supply fears, maybe in tandem – further stocked fears of tight supply.
Since 2015, LME nickel stocks have fallen from some 500,000 tons to under 100,000 tons today, without any corresponding run-up in trade or off-warrant stocks.
There seems little argument that the nickel market is in deficit.
According to the International Nickel Study Group, the global nickel supply deficit is expected to ease from 144,000 metric tons in 2018 down to 79,000 tons in 2019. The deficit is expected to ease further still, down to 47,000 tons in 2020.
The easing of the deficit comes in large part because demand is slowing.
According to a post on RecyclingInternational.com, stainless steel production in Europe during the first half of 2019 declined 4.9% compared to the first half of 2018, falling to less than 3.75 million tons. The International Stainless Steel Forum also expects total stainless steel consumption in Europe/Africa to fall 5.7% in 2019 before rebounding by a modest 0.4% in 2020.
Yet at the same time, some analysts are predicting Asian demand will grow.
Macquarie Research is quoted as saying it expects Chinese stainless steel production to rise from 26.7 million tons in 2018 to 29.5 million tons in 2019, then 30.1 million tons in 2020.
All other things being equal, that combination should have seen prices continue to rise — or, at the very least, plateau at the elevated levels reached in September. However, after reaching a peak of $18,000 per ton, prices have since fallen back to below $15,000 per ton.
Is this simply a result of investors getting cold feet faced with an ongoing trade war and fears of continued growth in China?
We wrote back in Q3 that nickel prices appeared unsustainable and, as such, we expected them to fall.
But even we didn’t think we would see them back below $15,000 quite so soon.
If it offers any indication of supply-demand, LME nickel inventory has remained fairly stable during the month of November, with deliveries and load-outs reflecting more of trade demand than significant investor behavior.
Suffice it to say, for the time being the plunge in stock levels has stopped.
Producers are making noise about expected demand, particularly from electric vehicles (EVs) – remember them, the source of unsustainable demand for copper, lithium, cobalt and, yes, nickel?
The Union Bank of Switzerland predicts demand from electric vehicles will jump from 3% to 12% of global nickel demand in just three years, not least because states and governments are mandating zero-emission targets for the automotive industry (for example, California may need 1.5 million EVs in the next five years).
Such predictions, if realized, would spur very significant nickel demand.
But we have had false dawns from EVs before.
States can mandate, but they need to put in charging infrastructure and manufacturers need to achieve technological advances that extend between charge ranges before EVs are taken up by the mainstream.
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Investors seem to agree the focus remains on the balance between ore and scrap supply on the one side and Chinese, if not Asian, stainless steel production on the other.
Ore and scrap supply seem steady; the knowns are known, at least.
The unknown is demand.
As is so often the case in metals markets, the focus remains very much on China and the health of its manufacturing sector in the year ahead.