Strong start to year fades as investors become wary of growth in Indonesian production over the coming years.
Amid renewed coronavirus concerns in Europe, global shipping bottlenecks and supply chain uncertainty, price volatility has become more pronounced. The recent decline in nickel prices, along with rising logistical challenges, are contributing to significantly more challenging markets for stainless steel and stainless scrap.
After a strong start to the year, LME nickel cash prices plunged from around US$ 20 000 per tonne in late February to under US$ 16 000 per tonne in early March. At the same time, nickel stocks in LME warehouses have increased by more than 13 000 tonnes since the start of the year to over 260 000 tonnes.
Stainless steel scrap prices and market sentiment have subsequently come under pressure, despite largely positive macroeconomic, manufacturing, and commodity market expectations for the remainder of 2021.
Expectations for rising nickel demand, particularly from the electric vehicle battery market, helped to propel nickel prices higher early in the year. According to the China Association of Automobile Manufacturers, new ‘energy vehicle’ sales in China will climb 40% this year to 1.8 million units, while Goldman Sachs forecasts EV battery demand will boost nickel demand by 400 000 tonnes by 2025.
However, rising nickel and nickel pig iron (NPI) supply levels are undermining investor support for nickel. According to estimates from the International Nickel Study Group, global refined nickel production exceeded demand by 84 000 tonnes in January, the 15th consecutive month of surpluses.
The rapid increase in Indonesian nickel production is of particular concern. Reuters reports ‘Indonesia is now both the world’s largest nickel producer and the fastest-growing one, with national mine output surging another 41% last year to 853 000 tonnes’.
The sell-off in nickel prices in early March was precipitated by an announcement from China’s Tsingshan Holding Group that it had signed contracts to sell up to 100 000 tonnes of nickel matte derived from NPI to Chinese battery makers.
As reported by Macquarie Research and other outlets, the Tsingshan announcement is a major development as NPI production had previously been steered towards the stainless steel industry. Tsingshan also projected it will ramp up nickel production from 600 000 tonnes of contained nickel this year to 1.1 million tonnes by 2023, well in excess of most analysts’ expectations.
Investors quickly reacted with Fastmarkets reporting ‘the net speculative length in LME nickel has declined notably over the past month, reflecting some long liquidation… More speculative selling cannot be ruled out because short-term momentum turns negative’.
Would you like to share any interesting developments or article ideas with us? Don't hesitate to contact us.