Nickel rallies on macro, EV demand

Nickel prices on the London Metal Exchange (LME) surged to $26,130/t yesterday, reaching levels not seen since June on the back of bullish sentiment driven by better-than-expected US inflation data, with the accelerating world EV market and rumours of possible supply disruption from Russian Class 1 producer Norilsk Nickel (Nornickel) providing ancillary support.

The day's bounce came after the release of the recent round of US inflation data, which showed an annual rise in the US consumer price index of 7.7pc in October, the smallest 12-month increase since January this year and well below analyst forecasts of 8pc. The cooler inflation data was seen by the nickel market as a possible stepping stone towards a slower pace of future interest rate hikes by the US Federal Reserve, which together with a subsequent weakening of the dollar sent prices soaring towards the end of the day.

Nickel prices have been riding the EV wave recently, with official prices rising by nearly 10pc over the last two weeks to settle at $24,537.50/t yesterday, owing to the consistently positive near- and medium-term demand signals from the auto and electric vehicle (EV) battery markets.

China's output and sales of new energy vehicles (NEVs) — including battery electric vehicles (BEVs), plug-in hybrids and fuel-cell vehicles — hit all-time highs in October at 762,000 units and 714,000 units, respectively, data released earlier this week showed. The country's NEV production more than doubled during January-October to 5.485mn units, with sales also doubling over the period to 5.28mn units.

According to forecasts by Argus Consulting, European EV sales are expected to rise to 4.5mn by 2025, nearly double 2021 levels. And a white paper published by trading services firm Marex further projects world battery demand to touch 490GW this year, then nearly triple to 1406GW by 2025.

Much optimism around nickel prices has been derived from recent automaker results. EV giant Tesla produced over 365,000 vehicles and delivered more than 343,000 during the third quarter, year-on-year upticks of 54pc and 41pc, respectively. The company this week said it had plans to reapply to expand its gigafactory in Berlin, Germany.

Chinese producer BYD's BEV output increased by 151.31pc on the year to 104,894 in October, with production of plug-in hybrid electric vehicles up by 196.18pc to 114,915 units.

"There is inflation and there is a chance of recession," a market participant said. "But they continue to believe in nickel."

The market has also assessed recent producer activity favourably in choosing to go long. Australian resources firm BHP said last week that it expects nickel demand to grow four-fold by 2050, and Brazilian nickel miner Vale is also engaged in the reorganisation of some of its base metals operations as it targets more nickel and copper production in coming years.

Thursday's nickel rally came alongside unconfirmed rumours that the government of Finland has barred Russian mining group Nornickel from using its railways to ship feed to its Harjavalta refinery, leading to possible upcoming disruption in high-grade nickel supply. Market participants, mostly unsure about whether Finland had gone ahead with such an action, indicated that this may have led to small-scale panic-buying of cathode products where supply is already tight.

On-warrant nickel inventories in LME warehouses have fallen by over 60pc over the past year, and the market is now highly sensitive to any further supply disruption.

Other market participants ultimately pointed to the dearth of liquidity that has plagued nickel trading for much of this year as the main driver of the recent LME price movement, stating that prices have risen because traders did not want to be caught short in a still-volatile market. And with the LME's decision on whether to ban Russian material in its warehouses looming, traders aim to hold onto positions for fear of wide-scale curbs being introduced.

By Raghav Jain