Viewpoint: Cu, Ni may come under pressure in 2022

Global copper and nickel prices may come under pressure in 2022 amid quantitative tightening policies, rising production and the continued risk of further Covid-19 lockdowns.

The US implemented a major quantitative easing policy over 2020-21 to combat the economic slowdown caused by the Covid-19 pandemic, although the policy has also pushed up US inflation, which hit its highest level since 1982 at 6.8pc at the end of November. On 15 December, the US Federal Open Market Committee decided to tighten its monetary policy with the phasing out of a bond-buying stimulus programme by March — much faster than previously planned.

This signal that the US might raise interest rates more aggressively is likely to dampen sentiment in the copper and nickel futures markets, which were also coming under pressure in late December from rising numbers of Covid-19 cases across Europe and the growing likelihood of further lockdown restrictions.

Market participants are also weighing up the likely impact of planned production hikes for both copper and nickel.

Increased copper concentrate production and power supply in China in 2022 will lend support to smelters' operation rates, while the commissioning of new project such as China's Daye Smelter and the ramp-up of some existing smelters such as China's Fangyuan will also boost copper supply this year. East China's copper smelter Fangyuan on 20 October commenced a second production line with 300,000 t/yr production capacity. Central China's 400,000 t/yr Daye smelter is forecast to start commissioning in mid-2022.

Meanwhile, the global nickel market is expected to shift to a surplus of over 100,000t in 2022, compared with 2021's deficit of more than 100,000t. Indonesia will be the largest contributor to the production growth, with particular regard to nickel sulphate feedstocks — nickel-cobalt mixed hydroxide precipitate (MHP) and nickel matte — and nickel pig iron (NPI).

In Indonesia, Ningbo Lygend's two MHP production lines, which have a combined capacity of 36,000 t/yr, commenced in March and October, respectively. Huayou Cobalt's MHP project PT Huayue delivered its first output on 1 December and is expected to be operating at its full capacity of 60,000t/yr in 2022. Meanwhile, Tsingshan's 100,000 t/yr nickel matte project in Indonesia debuted on 9 December.

NPI production growth is mainly stemming from new Indonesia-based projects including Tsingshan Group and Delong Steel. An estimated 48 NPI production lines will come on line in Indonesia this year.

LME prices volatile but still strong

LME copper and nickel prices have undergone a choppy 12 months, demonstrating considerable volatility amid shifting conditions but broadly tracking upward as global economies recovered from their first and second lockdown cycles.

The three-month (3M) copper price was averaged at $9,281.50/t for 2021 as of the closing time for the Asian morning trading session on 20 December. That marked a 50.5pc increase from 2020's full-year average price of $6,166.30/t and a surge of 53.8pc from 2019's average of $6,034.20/t, aided by a worldwide quantitative easing policy to combat economic slowdowns.

The LME 3M nickel price stood at $18,486/t at the close of the morning trading session on 20 December 2021. That marked an increase of 32.7pc from 2020's full-year average price of $13,934/t and of 32.5pc from the $13,956/t average in 2019.