Nickel: A savior or in need of saving?

The need for critical materials such as nickel has become a priority as the world transitions to greener and more sustainable options that involve boosting e-mobility and strengthening supply chains. This coveted metal has been dubbed a “silent savior” for electric vehicle (EV) battery manufacturers and recyclers. However, the future of nickel prices, at least for this year, looks bleak.

London Metals Exchange (LME) nickel three-month contract prices have fallen nearly 25.67 percent from $31,350 per metric Jan. 3 to $23,300 per metric ton March 31. A subdued finish to the first quarter of this year signals bearish sentiment for the remaining three quarters.

This drop also is less than $2,000 per metric ton shy of the six-month low of $21,385 per metric ton reached Oct. 4 of last year.

Should recyclers worry?

In short, yes, given the extent of volatility in the first three months. LME nickel prices also affect trends in stainless steel pricing. From a macroeconomic perspective, for an industry that consumes almost 70 percent of the world’s supply for manufacturing, it is bound to feel at least some pressure.

U.S. stainless scrap prices have had limited movement since 2023 began, and processors are bearish for the year.

Outlooks vary across regions. For instance, dealers in the Midwest are being more conservative, while those in the South are cautiously optimistic. Davis Index prices of 304 solids remained in the 60 cents to 63 cents per pound range, delivered to the processor’s yard, during the first quarter. Pricing for 316 solids also was range bound from $1.14 to $1.16 per pound, with sporadic highs of $1.28 to $1.31 per pound for single truckloads, during the same period.

Supply of recycled material was low during this period and, interestingly, so was demand, giving rise to uncertainty in the market. Many say they are hoping for a correction that could bring about a shift in grade prices; but, presently, the U.S. stainless steel market appears to be in general limbo.

Producers remain optimistic

Nickel and stainless steel producers, on the other hand, are looking at the bigger picture in terms of supply and demand. Russian nickel miner Nornickel—also one of the largest—expects global usage and production to rise by 11 percent and 10 percent, respectively, to 3.35 million metric tons and 3.47 million metric tons. These projections align with its nickel surplus estimate of 120,000 metric tons for 2023.

Nornickel’s forecasts for 2030 are more aggressive, owing to a 4.5 terawatt-hour (TWh) growth in battery production worldwide compared with 1 TWh last year as new capacities begin to come online. Moreover, demand within the segment could triple to 1 million metric tons by the end of this decade.

Notably, the company has pegged lower stainless steel production for this year as Class I and Class II nickel ore supplies strive to find middle ground. Nornickel also has lowered its annual production guidance range by 1,000 metric tons to 204,000 to 214,000 metric tons against 2022 targets. Lower volumes primarily are because of smelter repairs, however, trade sanctions and weak nickel demand in Russia are additional influencers.

Global base metals conglomerate BHP reiterates that an EV push could give impetus to growing nickel demand. Moreover, the Australia-based company anticipates additional support from government legislation. For instance, the Inflation Reduction Act in the U.S. could open doors for more green initiatives. The mining company says it is expecting additional production volumes of almost 200,000 metric tons after 2025 from projects in Tanzania and Australia.

Accelerated regional growth

A few nations are ahead of others when it comes to nickel production, which also affects the outlook for the year.

Indonesia has estimated ore reserves of almost 21 million metric tons, significantly higher than the 1.6 million tons of nickel produced in 2022, according to data from the U.S. Geological Survey. The country’s proximity to China, which is making more new energy vehicles every year, aids in efforts to ramp up battery capacities. The China Association of Automobiles Manufacturers has reported annual increases of 18.1 percent during the first two months of 2023 and 97 percent in all of 2022.

Apart from pushing nickel for batteries, Indonesia also is forging new raw material supply deals for stainless steel. PT Vale has advanced its 120,000-metric-ton-per-year High-Pressure Acid Leaching facility through collaborations with Ford Motor Co. and Huayou in late March. India’s Jindal Stainless Steel acquired a 49 percent stake in an Indonesian smelter to source nickel pig iron raw material around the same time. The country has secured nearly $15 billion in strategic deals for EV battery manufacturing since 2018.

Other countries or regions such as New Caledonia, Australia, Russia and the Philippines also are gearing up to add about 1.03 million metric tons of nickel volumes globally. Moreover, in North America, the U.S. and Canada recently inked terms to partner over strengthening their critical minerals supply chains. Canada’s Budget 2023 includes a $1.5 billion stimulus that provides for battery-grade material mining and EV cells manufacturing.

Understanding risks

Although industries are amping up EV production, stainless steel remains a formidable opponent when talking about nickel demand. This, in turn, reflects on the commodity’s outlook.

Globally, infrastructure projects seem to have stalled as raw material suppliers are dealing with rising costs for metals and utilities. However, real estate construction could revive as the economy recovers after the COVID-19 pandemic.

New nickel capacities also can have a downside, leading to a widening surplus gap. Data from Lisbon, Portugal-based International Nickel Study Group (INSG) show global nickel production rose 22 percent annually in January compared with the month prior. Though monthly volumes were down, consolidated inventory could reach 3.2 million metric tons by the end of this year. Demand, however, rose by 2 percent from the same month in 2022. It translates to 2.8 million metric tons, or a supply surplus of 255,000 metric tons for 2023.

Forecasting LME nickel prices

World Bank estimates nickel prices in 2023 will stand at about $20,000 per metric ton, 16 percent lower than pricing at the end of 2022. Other firms have forecast a bearish trend of $22,000 to $25,000 per metric ton this year, down to $19,000 per metric ton in 2024.

Stainless steel (finished and scrap) will continue to dominate until 2025, and LME nickel prices could remain volatile unless demand and supply do not balance. The road ahead appears to be patchy at best, even with new nickel battery capacities for EVs coming online.

The LME has implemented new measures to curb drastic fluctuations, but it remains unclear how they will improve liquidity and warehouse inventories for Class I nickel (used in stainless steel).

Sanctions against Russia will have effects beyond 2025, and a few analysts predict another softening in LME nickel prices during 2027. An upturn might occur after 2031 as refined nickel volumes from countries such as Indonesia begin to fulfill global demand.

Huban Kasimi is the Americas editor at Davis Index and can be reached at huban.kasimi@davisindex.com.