Nickel prices may weaken by June despite rising to highest since 2014

Nickel prices have currently increased to their highest since 2014 on low inventories reported from the London Metal Exchange (LME), but the metal’s prices will likely weaken by the end of the first half this year.

On LME, the three-month nickel contract ended at $21,500 a tonne on Tuesday, while the metal was offered at $21,680 for cash. On LME Select, nickel was quoted at $21,950 on Wednesday morning.

On Shanghai Metal Exchange, nickel for delivery in February was quoted at 162,910 Chinese yuan ($25,596.27) against 154,840 ($24,328.32) on Tuesday.

Stocks at Chinese ports

Shanghai Metals Market reported that nickel ore inventory at Chinese ports dropped by 65,000 wet metric tons (wmt) to 8.59 million wmt as of December 31.

Low nickel stocks and projections of destocking are expected to support nickel prices in the near-term, according to traders.

Dutch multinational financial and investment services firm ING’s economics and financial analysis wing Think said there was persistent tightness in nickel besides the low inventories. “Reportable inventories at LME warehouses declined for a 50th straight session, adding further worries over the availability of the metal,” it said.

US firm Fitch Solutions Country Risk and Industry Research (FSCRIR) said nickel prices are likely to weaken during the first half of this year as the acute market tightness witnessed during October-November 2021 continued to ease.

“Prices have already fallen from multi-year highs reached during October and we expect this consolidation to persist over the coming months,” it said.

World Bank forecast

A drop in nickel price would mean that rates would average lower than $17,000 a tonne compared with the 2021 average of $18,400.

In October last year, the World Bank forecast nickel prices to decline four per cent in 2022 after a projected 34 per cent gain in 2021.

Nickel is used in the production of stainless steel and other alloys besides in food preparation equipment, mobile phones, medical equipment and power generation.

Fitch Solutions said consumption by China’s stainless steel sector, the main driver of global demand, is likely to weaken as a slowdown looked imminent.

Output set to rise

As regards the supply of the metal, FSCRIR said production should improve in major producer nations such as Indonesia and the Philippines. Besides these two nations, other major producers are Russia, New Caledonia, Australia, Canada, Brazil, China and Cuba.

The research agency said with lockdown curbs being eased in Indonesia, disruption to nickel refining and construction of additional capacities will end.

In the long-term, the World Bank and Fitch Solutions see a steady uptrend in nickel prices.

“In the longer term, nickel is expected to benefit from the energy transition, notably electric vehicle batteries. Despite strong growth prospects for both batteries and stainless steel, nickel supply growth is expected to be adequate,” the World Bank said in its report.

Demand for EV, storage utilities

Fitch Solutions forecast a steady uptrend in nickel prices to 2027 from 2023 and prices may rise to a new record. Annual production deficits will sustain high prices for the metal while expanding global battery production for electric vehicles and utility storage industries will drive the demand.

While stainless steel sector growth is expected to slow after expanding strongly last year, global nickel production will face hurdles in the form of Indonesia’s ban on exports of nickel ore.

Fitch Solutions projects global nickel consumption to outpace production over the coming years, though the market deficits may shrink steadily with Indonesia refining capacity expanding.

On the other hand, S&P Global Market Intelligence has forecast a rise in nickel consumption as China and Indonesia are expected to expand their stainless steel capacity. Demand outside China would be the main driver of growth this year, it said.

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