ING analyst sees nickel pricing remaining subdued

Earlier this year, recycled-content stainless steel traders and producers, taking part in a panel discussion, expressed confidence that nickel-bearing stainless scrap and recycled-content stainless steels were poised to fetch a price premium in a world seeking to tamp down carbon emissions.

That premium could prove helpful in 2024 for traders and processors who benefit from lofty prices if a recent forecast on the value of primary nickel next year proves accurate.

In an early December analysis, Ewa Manthey of Netherlands-based ING makes a 2024 forecast for nickel pricing on the London Metal Exchange (LME) that predicts a short-term peak of $17,000 per metric ton in next year’s fourth quarter, with the quarter averages staying in the $16,600 to $16,850 range before that.

“Nickel has been the worst-performing metal on the LME so far this year, with prices down around 45 performance," Manthey says. "We believe this underperformance is likely to continue, at least in the near term, amid a weak macro picture and a sustained market surplus.”

Some of the decline in pricing could be attributed to the trading volatility that peaked in March 2022 with a price spike that most observers agree had little to do with nickel’s genuine supply or demand situation.

In the physical market, however, abundant nickel pig-iron (NPI) production in Indonesia continues to create steady supply that puts a ceiling on any upward price momentum for nickel, Manthey says.

The analyst says much of Indonesia’s output is categorized as Class II, or lower purity material, commonly used in stainless steel production. “Indonesia's nickel mine production hit an estimated 1.6 million tons last year, up 54 percent from 2021, according to the United States Geological Survey," she adds. "That makes up nearly half of global nickel production, which totaled an estimated 3.3 million tons [last year]."

Since then, nickel smelting capacity and activity have expanded further in Indonesia, with stainless producers from China identified as first in line to build smelters there. “We believe rising output in Indonesia will continue to pressure nickel prices next year,” Manthey says.

China itself has remained active producing Class I nickel, with its producers having boosted their output by more than 36 percent as a means of protecting themselves from the historically elevated LME prices of early 2022, ING says.

“In more traditional sectors like construction, demand has mostly disappointed," ING says of the demand side. "China’s flagging recovery following COVID-19 lockdowns has hurt the country’s construction sector and has weighed on demand for nickel this year. Investment in property development fell 9.3 percent in the first 10 months of 2023, while residential property sales fell 3.7 percent from January through October compared to the same period in 2022.”

Regarding the overall supply and demand balance for 2024, citing the International Nickel Study Group (INSG), Manthey writes, “The surplus in the global nickel market is expected to widen to 239,000 metric tons in 2024, marking the third consecutive year of excess supply. The surplus will be the largest yet.”

What might that mean for pricing? “Concerns about the oversupply in the nickel market have been reflected in investor positioning on the LME, which is the most bearish it has been since 2019,” Manthey says. “The nickel short position is the largest of the six LME base metals. This build-up makes nickel vulnerable to violent price spikes should inventors unwind their short positions.”

The LME, on the other hand, says it has been vindicated in its response to the March volatility by a recent court ruling, and it says the volume of trading against its nickel contract has rebounded from the March 2022 incident.

“It’s good to see the nickel market showing signs of stabilization and growth,” the LME states in an early-December newsletter. “Average daily volumes across all venues and prompts was at about 50,000 lots in November—the highest since March 2021.”