ISRI 2020 Fall Commodity Spotlight Series: Nickel surge could be on hold until 2022

The consensus among the speakers appearing at the Nickel/Stainless Spotlight webinar Sept. 15 as part of the Institute of Scrap Recycling Industries (ISRI) 2020 Fall Commodity Spotlight Series was that a full recovery in the nickel/stainless markets following the disruptions created by the pandemic will not occur until 2022.

Nickel prices have been volatile this year, said Natalie Scott-Gray, a senior metals analyst at London-based StoneX Financial Ltd. (formerly Intl. FC Stone). Its price fell 22 percent in mid-March from January levels to reach an annual low of $10,880 per metric ton. As of mid-September, the metal’s price was nearing $15,000 per metric ton. “Despite the V-shaped recovery in the nickel price that we’ve seen, it remains a far cry from prepandemic levels that were forecast for the metal. Prices this year were set to average $17,000 per [metric] ton," she said. 

Despite nickel prices having been buoyed by the falling value of the U.S. dollar, Scott-Gray said that is not likely to remain the case. She said she doesn’t expect the dollar to fall further but instead to strengthen as the country gets COVID-19 cases under control and Congress agrees on further stimulus. “I suspect that it will probably rise from where we are now rather than unravel dramatically further,” Scott-Gray said of the dollar. “So, with respect to that, it is actually a negative with respect to nickel prices at the end of the year.”    

Sean Davidson of Davis Index, Toronto, said London Metal Exchange (LME) nickel prices ranged from $14,500 to $15,500 per metric ton over the last 30 days as of mid-September. “Of course, this was a welcome recovery for the industry” from the lows seen during the pandemic-related lockdowns.

He added that scrap processors expect prices to remain strong for September and October. “Higher nickel prices invariably mean higher stainless steel scrap prices.”

However, Davidson said he prefers to look at spreads because they offer “a much clearer picture of the fundamentals that drive pricing.” He mentioned 316 solids, which were trading at 11.2 percent of LME nickel in mid-September. In February and March, 316 solids were at 12.3 percent to 12.4 percent of the LME price, he continued. In May, that spread was closer to 14 percent.

Davidson said that even though stainless demand and production fell during the lockdown, scrap supply fell more acutely. “Scrap supply relative to demand was actually much tighter. Throughout August and September, the percentage spread of stainless scrap prices relative to nickel have improved,” as have margins, he added.

Stainless steel mills are building inventory ahead of a very uncertain winter period with the U.S. presidential election and the possibility of increased COVID-19 transmission, Davidson said. “There are too many unknowns.”    

Nickel supply and mined production were hit worse than originally anticipated by the pandemic, Scott-Gray said, noting that mined nickel production declined 8 percent from Q1 to Q3.  

Refined nickel output, however, followed a different trajectory, having risen 3 percent during the same period, Scott-Gray said. This increase was driven by robust Indonesian output, giving that country 25 percent market share up from 6 percent in 2016. China still retains the most market share despite Indonesia’s gain.

Nickel inventories ended 2019 at their lowest levels since 2012, she said, at 217,000 metric tons, or 13 weeks of consumption. “Yet, by the end of the first half of this year, total stocks had risen by 85,000 [metric] tons to reach highest monthly level since July of 2018 at 702,000 [metric] tons, which is equivalent to 16 weeks of consumption.”

Stainless steel production, which accounts for roughly 70 percent of nickel consumption, declined 8 percent year over year from the first quarter of the year to the third quarter, its lowest level since 2017, she said. However, mills have been shifting to produce more nickel-intensive 300 series stainless, which is increasing nickel demand.

India’s stainless steel production increased 5 percent in 2019, Davidson said. Despite that increase, he added, “This year going to be very rough,” given the extent of India’s lockdown related to the pandemic.

As of the end of May, Davidson said only 30 percent of India’s production had returned. As of July, the country reached a 60 percent capacity utilization rate in the stainless steel sector. A 20 percent drop in India’s stainless production is expected for 2020, he added.

Hitesh Agrawal, general manager at Jindal Stainless, Delhi, said India’s stainless steel production has returned to 85 percent pre-COVID-19 levels as of September. He added that China, India and Indonesia have been leading Asian growth in stainless production, though India’s production is expected to see a 10 percent reduction this year compared with 2019 because of the pandemic.

Since 2000, India’s stainless production grew at a compounded annual growth rate of 8 percent. “What was lost during the lockdown should come back in near term,” Agrawal said. The country’s stainless production is heavily reliant on scrap, he added, noting that India uses 67 percent scrap versus 33 percent primary nickel. This compares with the U.S. which uses 79 percent scrap versus 21 percent primary nickel, Agrawal said.  

“No markets for nickel were left untouched by COVID, unfortunately,” Scott-Gray said, noting that the second most influential area of demand for nickel is in cathodes for lithium-ion batteries used in electric vehicles (EVs).

She said EV sales increased from 30,000 units in 2011 to 2.1 million units in 2019, for a 61 percent annual average growth rate. StoneX forecasts that EV sales will decline by 18 percent year over year for 2020. While the sector accounts for only 6 percent of nickel demand, she said, it is expected to rebound strongly in 2021 with the help of government stimulus programs.

Scott-Gray predicted that nickel will flip into a surplus at the end of the year as demand falls 3 percent. Pricing for the metal is not expected to rebound until 2021, with StoneX predicting a 10 percent increase, she added.

Davidson said stainless demand is expected to decrease from 18 to 25 percent in 2020. In 2021, stainless demand is expected to increase from 10 to 15 percent, with a full recovery not occurring until 2022, he added.