Although nickel price volatility has been relatively restrained as of late, nickel and stainless steel markets continue to be impacted by global economic risk factors including elevated inflation levels, rising interest rates, US dollar appreciation, the wobbly Chinese real estate market, and widespread expectations for a downturn in economic growth.
In addition, the traditional summer lull in trading activity, unpredictable transportation networks that have been exacerbated by extreme weather conditions, and elevated power costs have further complicated the picture for nickel and stainless steel market participants.
At the London Metal Exchange, cash nickel prices eased over the course of August, slipping from around $24,000 per tonne at the beginning of the month to less than $21,000 per tonne recently, while nickel stocks in LME warehouses have fallen below 55,000 tonnes. As primary nickel supply is ramping up and stainless steel demand is expected to cool off, the prevailing outlook for the balance of 2022 is extreme caution.
Growing global market imbalances
According to the latest estimates from the International Nickel Study Group, the global refined nickel market registered a supply surplus of 10,400 tonnes in the first half of 2022, compared with supply deficit of 97,600 tonnes in the first half of 2021. INSG estimates that global primary nickel output rose 13.9 percent year-on-year during Jan-Jun 2022, outstripping the 1.3 percent increase in nickel usage over the same period.
Macquarie Research estimates an even larger increase total world nickel production in first half 2022 (+18 percent to 1.504 million tonnes). A recurring theme in the global nickel supply story has been the disparity between the production of Class 1 nickel (traded on the LME) and the output of NPI, ferronickel, and intermediate nickel products that are frequently used to produce stainless steel.
Macquarie reports “This year has seen a major rise in third-party nickel intermediates (matte/MHP/MSP) production from Indonesia and elsewhere (production was an estimated 122kt in 1H22, up 258% YoY or 88kt). For the year, total growth could be ±200kt.”
Indonesia continues to be the major force reshaping the global nickel and stainless supply landscape. As reported by Reuters, “Indonesia was the world’s biggest exporter of nickel before it banned ore exports two years ago in favour of attracting foreign investors to develop nickel smelters and downstream industries onshore, with China being a significant source of investment.”
According to Macquarie, 40 new Indonesian furnaces were commissioned in the first half of 2022 alone, adding 350-400 thousand tonnes of annual production capacity, with another 37 furnaces scheduled to start up in the second half of the year.
Stainless Steel Demand in Question
Indonesian raw material export restrictions and the ramp up in Asian exports of stainless steel products have complicated matters for Western stainless producers and scrap processors. Finland-based Outokumpu recently projected their 3rd quarter stainless steel shipments may decline 10-20 percent quarter-on-quarter due in part to rising stainless steel imports from Asia.
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