Nickel on a declining trajectory in 2023

Nickel prices on the London Metal Exchange (LME) dipped below $20,000/t for the first time in nearly 12 months towards the end of June, as subdued demand-side fundamentals in the world's major economies combined with still-growing Indonesian supply to drive a sharp sell-off this year.

The LME three-month nickel contract started this year at $31,325/t, but declined steadily throughout the first half, shedding nearly 35pc to end June at $20,250/t. The official LME price slipped to $19,975/t on 29 June, the lowest since 18 July 2022, with bearish pressures dominating trading.

Nickel supply has far outpaced demand since 2022 and the structural surplus has increased this year as a result of weak demand from the stainless steel sector in Asia and Europe, even as appetite from the electric vehicle (EV) battery sector continues to be resilient. Still-rising Indonesian output and the launch of new Class 1 capacities in China and Indonesia have further contributed to the growth in supply, with researchers at Portugal-based International Nickel Study Group and Russian producer Norilsk Nickel (Nornickel) now projecting a global 2023 surplus of more than 200,000t.

China ended its strict Covid-19 restrictions at the start of this year, prompting nickel to be oversold in anticipation of a sharp recovery in manufacturing and consumer demand. Stainless steel production grew strongly in February as a consequence, but has since struggled as the China rebound has not fully materialised, weighing on prices and production margins. Chinese stainless steel exports fell by 6pc on the year to 86,000t in January-April, customs data show.

Indonesian stainless steel output has dropped even more sharply in response to weak demand, led by the Indonesian operations of China's Delong. Delong's January-April output was 86pc lower year on year because there were few takers for its long product range in China, according to Nornickel. Lower output has weighed on the group's nickel consumption.

Destocking challenges have led to thinning stainless steel order books for European producers, depressing nickel prices together with prices of other raw materials such as scrap. The Argus assessment for stainless steel scrap 304 (18-8) solids cif Rotterdam declined by a quarter during the first half of this year. Nickel consumption in Germany, which accounts for nearly a quarter of overall EU use, fell by 10pc year on year in January-June, according to Nornickel.

On the supply side, a further ramp-up of Indonesian nickel pig iron (NPI) and NPI-to-matte conversion capacities alongside the country's high-pressure acid leaching (HPAL) projects continues to churn out nickel units at a high pace. Indonesia has added 15 new NPI, ferronickel and nickel matte furnaces this year and now boasts a combined nickel product capacity of 5mn t/yr.

As EV production and sales across China, Europe and the US continue to be upbeat, despite economic and geopolitical headwinds, new plants focused on battery-grade nickel continue to flourish. The PT Huafei HPAL plant in Indonesia, which has a capacity of 120,000 t/yr of nickel metal equivalent, started up last month from its 240,000 t/yr production facility on Indonesia's Obi island to buyers in China.

Nornickel forecasts Indonesian NPI output to rise by 20pc to 1.374mn t this year, despite demand concerns for the stainless steel sector, as producers anticipate a rise in demand in the battery sector for nickel matte converted from NPI.

The decline in nickel prices this year has come despite LME-deliverable inventories continuing to trend at multi-year lows. On-warrant nickel inventories fell by more than a quarter in January-June to 36,582t. But while this has lent some support, supply has mostly been deemed to be sufficient, as nickel spreads continue to trade in a wide contango, with prompt prices at a discount to futures. With major producers Brazil's Vale and Nornickel having maintenance works in the pipeline, supply has received a boost from major Chinese groups' plans to produce Class 1 nickel from the emerging nickel sulphate surplus. Green-Eco Manufacture and CNGR have committed to producing nickel cathode this year, and the LME received a brand listing application from cathode active material manufacturer Huayou Cobalt last month.

The outlook for LME nickel prices is mixed in the second half of the year, with Chinese activity pivotal. Beijing's efforts to support the economy through higher infrastructure spending and broader stimulus were held back last year by endless Covid-19 disruptions, and this backlog of spending will continue to catch up in the months ahead to boost nickel demand in both the stainless steel and EV sectors. But the prospects for Europe's stainless steel sector remain weak and rising global Class 1 and Class 2 supply will continue to provide downside.

By Raghav Jain

LME three-month nickel official price $/t