Lost momentum?

Nickel prices slipped nearly 50 percent this year, and though the London Metal Exchange (LME) three-month contract had a strong start last year at more than $30,000 per metric ton, it reached $16,500 per metric ton toward the start of December 2023. The contract fell to a low of roughly $16,000 per metric ton in November, which means in less than a year, it shed $13,355 per metric ton.

Holding out for recovery

Market participants are holding out for recovery in the second quarter of 2024, given demand for electric vehicles (EVs) could boost Class II nickel use. However, concerns also are being raised on the supply side.

The December 2023 outlook for LME nickel remained soft after the three-month contract fell 7.6 percent in November. Moreover, any anticipated rally could fade once the shorts are flushed out, says Edward Meir, president of Commodity Research Group at London-based Marex.

Nickel’s fundamentals remain daunting, Meir notes, as the market was in a 23,900 metric ton surplus in September 2023, following an excess of 15,300 metric tons the previous month. During the first nine months of last year, excess supply totaled 155,000 metric tons, among its widest surpluses.

If nickel is to have any hope going into this year, it will have to come from supply cutbacks. But for the market to experience that, prices could have to move lower, Meir says.

Is use fading?

Nickel consumption faces headwinds in light of the slowdown in China’s EV battery industry and the shift toward lithium iron phosphate (LFP) batteries, which do not use cobalt or nickel. As a result, the market is burdened with increasing amounts of Class II nickel-based units that will struggle to find homes, at least in the first quarter of this year, especially if Western markets remain closed to Indonesian facilities thought to be owned by the Chinese.

At roughly 70 percent, the stainless steel sector consumes most nickel. Despite the expected demand from EV battery makers, only 3 percent of nickel is used in battery production.

In 2023, expected nickel use in the battery sector was slower at 4 percent annual growth. The introduction of nonnickel batteries, coupled with China’s shift from battery-EVs to plug-in-hybrid EVs despite record EV sales, has been a concern for nickel battery manufacturers.

2023 price trends

Several factors have conspired to drive nickel prices downward, and the metal does not seem to be out of the woods yet. Toward the end of July 2023, nickel underperformed as the surplus grew. A weak global macroeconomic environment and elevated inflation made things worse in the second half of the year.

Indonesia’s expanding output kept the nickel surplus high even at the end of the third quarter and continued to do so.

China’s lower-than-expected market recovery after the prolonged effects of COVID-19 lockdowns has been the key concern for nickel consumption as the country accounts for more than half the global amount. Its factory activities contracted in October of last year, leaving the global economy high and dry.

Before its popularity faded last year, demand for nickel looked promising in 2022, with a spurt in e-mobility sparked by the transition toward a greener economy. Nickel demand was projected to soar and mined and refined nickel production started to increase. Expanded nickel production capacities in Indonesia and the Philippines, especially for Class II nickel, were supposed to meet growing demand.

The Indonesia effect

Nickel is the center of Indonesia’s efforts to become an EV battery hub and, since the country’s ban on ore exports in 2020, Chinese firms have aggressively invested in the Indonesian nickel market.

Chinese funding continues to pour into Indonesia to tap into the country’s nickel reserve, which was close to reaching 55 percent of the global supply toward the end of 2023. Western investors are cautious about Indonesian nickel, though.

Concerns around environmental issues have been unfolding for some time. The Indonesian government has issued several suspension orders, and new mining quotas have been kept on hold. Authorities are investigating illegal mining and ore exports.

The tug-of-war between roaring production of EVs and massive emission cuts will last for a few years without a clear winner. On one end, economies are trying to reduce their carbon footprints, while exhaustive nickel mining and smelting for growing use in lithium-ion batteries have become necessary. Accelerating the energy transition has harmful environmental impacts.

Moreover, safety issues at Indonesian nickel smelters have raised questions and concerns, while labor unrest hinted at dampening output. Production in Indonesia and the Philippines has remained high, with Indonesia’s output rising to 1.58 million metric tons in 2022, accounting for nearly half the global production.

•  Korea’s LX International and STX each have acquired a stake in an Indonesian nickel mine.
•  Vale Indonesia partnered with China’s Zhejiang Huayou Cobalt and Huali Nickel Indonesia to build a nickel processing plant on the island of Sulawesi.
•  In August of last year, Indonesia and China partnered to form an EV supply chain with the Indonesian Chamber of Commerce, seeking investments from Chinese mining companies.
•  In March of last year, Jindal Stainless acquired a 49 percent stake in an Indonesia-based nickel pig iron company to strengthen its raw material supply chain.
•  Also in March of last year, POSCO Holdings of South Korea announced an memorandum of understanding with China’s Ningbo Richin Industry for nickel production in Indonesia.

Market imbalances?

The first and foremost factor pressurizing nickel prices is the surplus that the market is grappling with. As of October 2023, LME warehouse Class I nickel volumes have dropped by 9 percent since January, underlining the surplus situation with stocks of around 44,784 metric tons as of Oct. 31. Nickel warehouse stocks remain historically low, with 2015 volumes above 430,000 metric tons, while in 2020 they came down to the 240,000-to-250,000-metric-ton range.

Global refined nickel output is forecast to rise by 6 percent annually by 2025, Australia’s Resources and Energy Quarterly (REQ) report released Oct. 3, 2023, indicates. Meanwhile, mined nickel is expected to rise at an annualized rate of 5.8 percent until 2025, reaching 3.8 million metric tons.

Global nickel surplus expanded last September to 23,900 metric tons from 14,200 metric tons in September 2022, according to data from the International Nickel Study Group (INSG), Lisbon.

In August 2023, the surplus was 15,300 metric tons. Between January and September of last year, the surplus was 155,000 metric tons compared with 60,500 metric tons in the nine-month period the previous year, Meir notes.

The Indonesian output surge of the last few years is more of a tsunami as opposed to an ordinary ramp-up, he adds.

INSG’s data pegs 31 percent more output annually in the first seven months of 2023, spurred on by a whopping 85 percent jump in intermediate products, such as nickel pig iron, matte and sulfates.

Exports of Indonesian sulfates began in May 2023 and grew to 25,000 metric tons as of November, accounting for 38 percent of total arrivals into China.

Overall nickel supply is projected to grow by 12 percent in 2023 and by another 9 percent in 2024, according to INSG.

Nornickel, the Russian mining giant, has said potential supply risks could result from the announcement that the high-grade nickel saprolite ore reserves in Indonesia are likely to be exhausted within six years. The nickel market has not yet grasped this potential supply risk amid the high production of Class II nickel available at a discounted price.

In addition, several miners are left with shrinking margins, and Nornickel’s forecast deems current nickel prices unsustainable. However, the nickel surplus could exceed 190,000 metric tons this year with high production of low-grade nickel thanks to China and Indonesia. Other regions will see a relatively flat production trend.

This year, the stainless sector is forecast to increase its nickel use by 7 percent annually, while moderate growth of 6 percent and 10 percent is predicted for the alloys and superalloys, respectively, Nornickel says. Nickel demand from the EV sector could rise more than 25 percent in 2024 owing to restocking cycle in the battery supply chain.

Production estimates

Nickel mining giants around the world, including Glencore, First Quantum, Eramet and Vale, have slashed their nickel production guidance for 2023. Vale expects to produce 160,000 to 175,000 metric tons, down from 179,000 metric tons produced in 2022. First Quantum dropped its expected production to 25,000 to 29,000 metric tons from the 28,000 to 38,000 metric tons. Glencore has revised its guidance to 102,000 metric tons from 112,000 metric tons. However, Australia’s South32 has maintained its nickel guidance despite weak September 2023 volumes. French mining company Eramet also lowered its nickel output target for 2023 by 5 million wet metric tons to 30 million wet metric tons.

Impact on recycled stainless steel

The LME nickel prices continue to influence prices for recycled stainless steel despite the LME nickel chaos that happened in March 2022. Last year was a rather squeamish one for recycled nickel grades. U.S. recycled stainless steel prices have moved at a severely slow pace since July 2023.

In January 2023, prices for 304 (18-8) peaked at 69.8 cents per pound and found their lowest point in June at 53.4 cents per pound. From August to September of last year, prices moved up to 57.5 cents per pound, buoyed by increasing export prices and a slight improvement in LME nickel prices, but have since remained range-bound between 55 cents and 56 cents per pound. Since January of last year, prices dropped by more than 17 percent for the 304 solids grade.

Export demand gave support to U.S. recyclers mostly in 2023, with higher demand coming from Mexico, India and Taiwan. The U.S. Department of Commerce reported that 267,000 metric tons of stainless steel were shipped from the country in the first half of last year, which was an increase of 78 percent from the previous year.

Recycled stainless steel prices remained rangebound across two months as of early December 2023, and the market is projected to be bearish, with a small recovery this January.

Several factors will go into the pricing outlook, with LME nickel on top followed by demand. The latter has been severely weak in the second and third quarters of 2023, and the final quarter of the year historically has been soft. The market remains uncertain regarding the whereabouts of recycled stainless steel demand in the first quarter of this year, but a rebound is expected at least by the second quarter.

China continues to slash its stainless steel production to align with environmental goals, while recycled stainless steel use has dropped given the availability of cheaper nickel pig iron (NPI). In Indonesia, however, putting an end to NPI projects is being considered, which could invite additional export duties in a bid to incentivize local downstream markets.

Thirty-one major steel mills in China planned to produce 10 percent less stainless in November of last year versus October, Meir says. With Western stainless demand also flagging, this will not help the nickel price outlook much over the short term.

For what it’s worth, INSG has refined usage increasing by 5.9 percent annually through September 2023. But 16 percent of that growth is in China, while demand in the rest of the world already is down 8.4 percent year over year.

Shohini Nath is a stainless steel analyst and editor at Davis Index and can be reached at shohini.nath@davisindex.com.