Not all battery metals are frothy: Nickel is in trouble

Nickel
Nickel

Summary

  • Supply growth from Indonesia paired with falling demand in Europe and China could spell trouble for metal

Lithium prices are through the roof, but not all battery metals are created equal: Nickel prices, which briefly surged following Russia’s invasion of Ukraine, look like the next victim of Europe’s energy woes and looming recession.

The London Metal Exchange’s three-month contract currently trades at $22,782 a metric ton, down from around $34,000 in April following March’s short squeeze, which briefly pushed future prices for the metal, used in stainless steel and batteries, to an intraday high of around $100,000 a metric ton. More pain might be coming: Goldman Sachs expects prices could fall as low as $16,000 in the next few months.

Unlike lithium, for which the red-hot battery sector is the main source of demand, nickel has the misfortune to also be yoked to the global construction sector, which is in trouble. Batteries only account for only about 15% of primary nickel demand.

Stainless steel, which accounts for 65% of nickel demand, according to Wood Mackenzie, is facing a particularly strong negative demand shock in Europe, which is teetering on the edge of recession. In September, ArcelorMittal, one of the world’s largest steelmakers, said it plans to close two plants in Germany amid soaring electricity costs. Goldman expects nickel demand from Europe’s stainless steel sector will fall 30% through the remainder of the year. Meanwhile, China’s property sector has been deep in the doldrums since late 2021. China alone accounts for 56% of global nickel demand, according to the bank.

To make matters worse, Indonesia, one of the world’s top nickel suppliers, is in the midst of a historic supply surge. The country’s production of nickel pig iron was up 27% year to date compared with the same period in 2021, according to Goldman’s late September report. S&P Global reckons global mined and refined nickel production will rise over 12% and 8% year on year, respectively, in 2022, following 10% increases for both in 2021.

One bright spot is low inventories of high purity nickel on the LME and Shanghai Futures Exchange in recent months. Inventory in terms of weeks of consumption fell as low as 1.7 weeks on major exchanges this summer, according to S&P Global, well below the 10-year average of 7.9 weeks. The supply of class one nickel, like that traded on the London Metal Exchange, increased only 4% year to date through July. Moreover, half of this growth came from Russia.

Low inventories of the high purity product don’t tell the whole story. Much of Indonesia’s output and exports are being sent to China as lower quality or intermediate products including nickel pig iron, that can then be further refined into stainless steel or battery quality material. In other words, much of the actual supply growth effectively is bypassing the LME entirely.

Nickel has had a wild year. In March, trading in the metal almost broke the LME after prices spiked up through the stratosphere. The year will probably end on a more somber note.

This story has been published from a wire agency feed without modifications to the text

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