Viewpoint: Weak Ni fundamentals to weigh on EV market

The start of a restocking cycle in 2024 across the Chinese electric vehicle (EV) battery value chain, along with easing inflationary pressures in major growth area Europe, will boost demand for nickel-based battery cathodes, ingredient nickel sulphate and input feedstocks after a slowdown this year. But supply is set to outpace this growth, with a ramp up in mixed hydroxide precipitate (MHP) and nickel matte production, together with a Class 1 and battery chemicals surplus, set to suppress prices and exert pressure on producers' margins.

Although EV sales reached record highs this year, nickel demand growth in batteries slowed as falling prices hit new production across the supply chain and created surpluses against a backdrop of rising no-nickel lithium iron phosphate (LFP) uptake in China and macroeconomic challenges in Europe and the US. Analysts expected 2023 nickel demand in batteries to rise by around 15pc year on year to more than 550,000t, but actual use grew more slowly to 486,000t, according to Russian nickel producer Norilsk Nickel (Nornickel).

The Argus assessment for nickel-rich NCM811 cathode active material fell by 66pc from the start of the year to $32.92/kWh on 12 December. The assessment for nickel sulphate min 22pc cif China upstream fell by a third in 2023 to $3,150/t on 18 December as benchmark London Metal Exchange (LME) nickel prices nearly halved from January to $16,900/t over the period. Sulphate fundamentals in Europe also weakened on slower downstream demand, with Finnish battery chemicals producer Terrafame's Talvivaara plant halting production in June-July on prevailing price pressures.

This price weakness is set to continue. Dutch investment bank ING expects benchmark nickel prices to be little changed and average $16,600/t in the first quarter of next year, with a full-year average of $16,813/t. And the International Nickel Study Group expects the global nickel surplus to widen to a record 239,000t in 2024, from 223,000t in 2023, on the oversupply of Class 2 and nickel chemicals. Analysts expect battery-grade nickel demand to recover, but price movement for nickel products in the value chain is expected to be sluggish in 2024 as LFPs continue to dominate market share in China, while a slow economic recovery in Europe caps demand for expensive, nickel-based batteries.

Nornickel expects world nickel chemicals output to surge by 30pc on the year to 663,000t on the ramp-up in NPI-to-matte conversion plants and new high-pressure acid leach capacities, creating an expected surplus of 50,000t.

Analysts project that MHP output will double to 300,000t in 2024 as output at plants in New Caledonia and Papua New Guinea continues to rise. Nornickel also anticipates matte supply, once expected to make way for MHP use, to rise by 50pc on the year to 346,000t in 2024 as nickel pig iron operations continue to be loss-making and producers switch capacity towards new Chinese Class 1 production and the battery market.

Australian research firm Macquarie expects the conversion interplay between the Class 2, Class 1 and nickel sulphate spaces to gradually drive a close correlation, with narrow differentials driven by conversion costs. Following its launch in July, the Argus MHP payable indicator 30-40pc Ni cif China rose to a high of 80pc in November over the period that LME nickel fell below the $17,000/t mark to 30-month lows. And the payable for matte also rose to a 2023 high of 85pc in November,just as LME nickel fell.

Market participants mostly consider the current nickel price environment in the battery market to be unsustainable, with a benchmark LME price level of $18,000-20,000/t considered the bare minimum to ensure the viability of plants. MHP and sulphate producers mostly reported rising production costs this year. Inflationary pressures on interest rates, energy prices, fuel and labour costs, together with weaker by-product credits, exacerbated the effect of weak sales prices, even as lower LME-linked nickel ore prices and cheap coal provided some relief to matte production costs.

A sustained downturn in prices in 2024 could create supply risks through the cancellation of new projects at a time when downstream EV producers are planning to scale up for the mass market.

But 2024 will likely be a year of slow price recovery, one where the market resets and demand grows gradually.

By Raghav Jain