Nickel price looks set for long term growth as demand builds

The nickel price is well known as something of a rollercoaster. The first quarter this year proved to be the tail-end of a strong and sustained recovery after the shock of the Covid lockdowns on the global economy last year.

From $11,055/t in March 2020, the price reached a seven-year high of $19,700/t by the end of February 2021. The price was in part driven by market speculation, based on fears that the supply of nickel suitable for use in vehicle batteries would be unable to keep up with surging demand.

In March, major Chinese stainless steel manufacturer Tsingshan announced that it would be supplying 100kt (75kt Ni) high-grade nickel matte to two Chinese battery cathode manufacturers, from October 2021, a deal that would ease concerns about battery-grade nickel shortages. The announcement caused the price to fall some 20% in the first week of March to below $16,000. However, the price soon rallied on news of US President Biden’s $3trn infrastructure spending promise, reaching $18,100/t at the beginning of June.

Nitesh Shah, Director of Research at WisdomTree commented “While the International Nickel Study Group projections indicate that nickel markets will be in a sizeable surplus in 2021, the high-quality metal availability for battery grade purposes is likely to be very tight. The high-pressure acid leaching (HPAL) technique to convert low quality ore into something that’s battery suitable is complex and projects have been riddled with cost and completion overruns with multiple failures to date. Moreover, the environmental damage from this technique is considerably higher than processing battery grade material directly from high quality sulphide deposits. Similarly, converting low-grade nickel pig-iron into a matte and further processing this into battery grade material is more energy and chemically intense processes than production from sulphides and has a greater environmental cost. So, while there may be surplus in low-grade nickel ore, we believe the market for high quality nickel will remain tight. The deliverable underlying the LME Nickel futures contract is high grade (class 1) nickel (defined as containing 99.8% nickel or above).”

Gradual long term growth outlook from Fitch

Despite expectations of a strong recovery in the global economy as lockdowns are lifted, we are not likely to see a repeat of last year’s sustained recovery: Fitch Solutions’ long-term nickel price outlook for 2021 is $16,500/t, on expectations of a gradual long-term growth.

The global nickel market has many moving parts, making forecasts tricky. On the supply side, a report from the International Nickel Study Group says the market is set to record a 45,000-tonne surplus this year, on top of last year’s 108,000 tonnes, with 262,000 tonnes of refined nickel sitting in London Metal Exchange warehouses, which dampens the price.

On the demand side, prices have been sustained by the nickel-based stainless steel market in China and, to a lesser extent, the strengthening expectations for the electric vehicle (EV) industry, now that it has the backing of ‘green’ government policies in the EU. However, the transition to higher-nickel cathodes will take time, and it is the stainless steel market in China that remains the main driver, being by far the single largest user of nickel.

Indonesia is a player at the nickel table

The outlook for the nickel market is strong, with a number of opportunities in prospect, but the industry faces a number of challenges too. Indonesia, the largest supplier of nickel, is enjoying something of a nickel boom, thanks to a policy decision to ban the export of unprocessed minerals, including nickel, which has had the effect of attracting foreign investment, particularly from China. Already, it has established a fully integrated stainless steel industry, and now is gearing up to build a local battery supply chain as well. A number of plants are currently being constructed that will add substantially to the supply of battery-grade nickel.

Indonesia’s problem is the growing influence of environmental, social and governance (ESG) considerations. Manufacturers are increasingly looking for raw materials and products that meet specified environmental standards. But for nickel miners, in particular the juniors, the challenge will be how to source financing from the investment markets, if they are deemed to be polluting or causing environmental damage. In Indonesia, mining companies had plans to dump the waste of their operations into the sea but were forced to abandon them under pressure from shareholders concerned about their own environmental credentials.

Indonesia will nevertheless continue ramping up production. Its output last year was 771,000 tonnes, twice that of second-ranked Philippines, but this year it is expected to be more than one million tonnes, with forecasts suggesting 2.5 million by 2028. Just as well, if the global economy is to meet its ambition to decarbonise.

Here’s a sample of available Nickel ETFs

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