Rising demand despite supply chain disruptions

Strong demand and higher prices for nickel underpin growth in the sector but logistics continue to be a challenge.

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By early September, nickel prices at the London Metal Exchange were up more than 16% for the year to date due to the on-going recovery in global manufacturing output and expectations for healthy future nickel demand, particularly from the electric vehicle market.

LME three-month nickel futures were trading above US$ 19 800 per tonne in late August after having traded below US$ 17 000 per tonne earlier in the year. Meanwhile, nickel stocks in LME warehouses have dropped by more than 70 000 tonnes since April to below 190 000 tonnes in early September. However, stainless steel recyclers continue to grapple with a range of obstacles including transportation bottlenecks and other supply chain disruptions stemming from last year’s Covid-induced recession, rising Delta variant infection rates and increasingly severe weather events. 

NICKEL FOUNDATION

The recent gains in primary nickel prices, supported by constrained supply and booming global demand, have helped to propel stainless steel and stainless scrap prices sharply higher this year. According to estimates from the International Nickel Study Group, global demand for nickel exceeded supply by 86 700 metric tonnes in the first half of 2021, as compared to a 74 200 tonne surplus in the first half of 2020.

Amid declining nickel stocks in both London Metal Exchange and Shanghai Futures Exchange warehouses during July and August, industry analysts continue to point to tight supply and demand fundamentals as being supportive features. Analysts at Macquarie Research are projecting global nickel consumption will increase 17% in 2021 to 2.8 million tonnes, an increase of 400 000 tonnes as compared to 2020 when Covid restrictions significantly weighed on consumption growth.

Rising demand for nickel in electric vehicle batteries is expected to be a key driver of growth this year, accounting for 100 000 tonnes of the gain in nickel usage in 2021, according to the Macquarie forecasts.

STAINLESS STRONGER

Stainless steel prices have benefited from rising nickel, iron, and chrome prices this year along with expanding manufacturing output in the major developed economies. The latest IHS Markit Eurozone Composite Output Index came in at 59.5 in August, down from the 60.2 reported in July but still well into expansionary territory.

According to IHS Markit, ‘The euro area economy recorded another marked expansion in business activity during August, with momentum only fading slightly from July’s 15-year peak. Jobs growth continued and was at one of the fastest rates seen in over two decades, as firms swiftly acted to boost operating capacities amid strong demand for goods and services’.

The growth in overall manufacturing output has also been reflected in expanded stainless steel production and rising capacity utilisation rates in both Europe and the United States as inventories are gradually being replenished. According to Finnish-stainless steel producer Outokumpu’s half-year 2021 financial report, the company’s stainless deliveries in Europe increased 8% year-on-year during the first six months to 811 000 tonnes while its Americas business unit increased stainless steel deliveries by 22% over the corresponding period to 368 000 tonnes.