Nickel prices have dropped by over 10 per cent in the past month and nearly six per cent in the past week on the US Federal Reserve Chairman Jerome Powell’s hawkish stand over interest rates, but analysts say the metal will rebound in the third quarter starting July. 

“In 2022, nickel prices are projected to average more than 50 per cent higher than last year,” the World Bank said in a report on Commodity Outlook. Last year, nickel averaged $18,465 before it commenced a bull run this year, primarily due to the Russia-Ukraine war.

Chaos in market

The war saw nickel prices topping $1,00,000 a tonne on March 8 before LME halted trade after a Chinese trader got caught going short. This led to chaos in the nickel market with LME suspending trade for a few weeks. 

“Nickel prices will edge higher in the third quarter 2022 as Chinese stimulus measures improve the demand outlook and the Russia-Ukraine war continues to disrupt supply, before falling towards the end of the year as refinery output ramps up, particularly in Indonesia,” said US research agency Fitch Solutions Country Risk and Industry Research, a Fitch unit.

Currently, nickel three-month contract is quoted at $24,950 a tonne on the London Metal Exchange. The metal is quoted at the same price for cash delivery, too.  Nickel prices have averaged at $27,912 till now this year. Prices are up 35 per cent year-on-year. On Thursday, the metal lost over 5 per cent on Shanghai Futures Exchange.

 Long-term outlook

Fitch Solutions has forecast nickel price at $27,500 for 2022 before slipping to $24,000 in 2023. The World Bank expects nickel prices to drop by 20 per cent next year. 

The US research agency said the demand outlook in the long-term looked strong due to the manufacture of electric vehicles (EVs) increasing, while western sanctions against Russia will continue to curb supplies. “...we expect yearly averages to remain at $23,000 and above,” it said.

“Russia accounts for 6 per cent of global nickel supplies, but 20 per cent of high-grade nickel for batteries, the fastest growing demand segment. Russian mining giant Nornickel has been incurring supply disruptions following sanctions,” the World Bank clarified the reasons for the price spike. 

Dip due to lockdowns

Fitch Solutions said nickel prices have collapsed from record highs after the Ukraine war following lockdowns in China and slack downstream demand. 

“We expect some more weakness in the coming weeks as demand continues to falter while supply improves before a price recovery in Q3 brings the annual average nickel price for 2022 closer to our forecast,” it said.

ING Think, an economic and financial analysis of Dutch multinational financial services firm ING, said nickel’s gain could come from speculation that Indonesia may impose tariffs onexports with nickel content below 70 per cent. This was mentioned by an official at a conference last month but there has been no confirmation yet.  

On the demand side, the World Bank said the production of stainless steel, which accounts for 70 per cent of nickel consumption, is slowing, mainly in China. But, demand for nickel-contained batteries continues to grow.

 “It is now the second-largest use for nickel (its share was up at 13 per cent in 2021 compared with 4 per cent in 2019). Nickel prices are expected to remain elevated until potential new supply from Indonesia ramps up,” the bank said.

Stimulus package

Fitch Solutions said it expects new stimulus measures announced by the Chinese government on May 31 to provide demand-side support to prices, driving them higher than current levels in the third quarter. “A number of the stimulus measures will increase nickel demand, including the new rules for increased quotas on car ownership, reduced purchase taxes for certain vehicles, and incentives to increase infrastructure construction,” it said.  

On the supply side, the ongoing war will continue to weigh on Russian production and exports. While Russian nickel firms have not been directly targeted by sanctions, they are impacted by supply chain and financing difficulties as Western firms increasingly abandon the Russian market, the research agency said. Freight and logistics have also become more complex and nickel importers in the West are increasingly shunning Russia-origin metals, primarily due to risks of further sanctions. 

Risks skewed

Reduced supply from Russia to global markets will have a significant impact on prices, as in 2021 the country was responsible for 9.3 per cent of the world’s nickel mine production and around one-fifth of refined nickel, Fitch Solutions said.

The World Bank said risks are skewed to the upside given potential export disruptions from Russia and possible problems bringing on new capacity in Indonesia. “Weaker demand growth and, in the longer term, competition from non-nickel batteries pose downside risks,” it said