Prices resilient but imbalances remain

London Metal Exchange prices have been sustained after China removed Covid restrictions and inflation levels globally appeared to have peaked. But market participants continue to face significant obstacles. 

Despite concerns that global nickel production will continue to exceed demand this year, LME nickel prices held up relatively well at the start of the second quarter. As nickel inventories in LME warehouses dipped to nearly 40 000 tonnes at the end of April, LME nickel prices have been hovering around US$ 24 000 per tonne recently, up from around US$ 22 000 per tonne in late March.

According to Macquarie Research, ‘the resilience of LME nickel prices during April was in contradiction to the trend in prices for nickel pig iron and nickel sulphate which traded at growing discounts to LME. For nickel pig iron (over 50% of world production), April average prices were less than 60% of LME prices for the first time’.  

Average daily trading volumes on the LME were down by 15% year-on-year in March and by 14% over the first three months of the year. Shanghai Future Exchange nickel trading volumes were down more than 50% in Q1 2023 as compared to Q1 2022, according to SHFE data.

New contracts?

A recurring theme has been excess global supply of primary nickel, nickel pig iron, and other sources of Class 2 nickel. According to the latest estimates from the International Nickel Study Group, world refined nickel production increased 17.3% in 2022 and is projected to increase another 10% in 2023, resulting in an expected global supply surplus of 239 000 tonnes this year, equivalent to 7.6% of world nickel usage.

There has been considerable speculation about the creation of new exchange-traded nickel contracts but the Financial Times reported in April that the CME Group had decided to not launch one, according to statements from CME Group chairman and ceo Terry Duffy.

According to Edward Meir from the Marex Group, a new Class 2 nickel contract would be more useful than another Class 1 nickel contract given the increasing share of nickel pig iron and nickel sulphate production and consumption by nickel and stainless steel market participants. 

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