Nickel to Witness Supply Surplus in 2020, But Well Poised for a Boom Over the Long-Run

  • Jun 30, 2020 AEST
  • Team Kalkine
Nickel to Witness Supply Surplus in 2020, But Well Poised for a Boom Over the Long-Run

Summary

  • Nickel prices are currently under a recovery mode over the supply woes coming from Brazil with the behemoth Brazilian miner- Vale downgrading its nickel production forecasts for the year.
  • The market is currently speculating over the supply woes, rooted over several restrictions imposed by various governments to contain the COVID-19 spread.
  • However, many industry experts anticipate that the nickel market would witness a surplus in 2020 over a considerable decline in global consumption.
  • The Department of Industry, Innovation and Science projects the nickel market to witness a surplus of 43,000 tonnes, leading to a decline in the average price at USD 12,600 a tonne in 2020.
  • Over the long-run, the supply is estimated to squeeze, while the demand from stainless steel sector, especially from China, along with the demand from EV, is projected to support nickel over the long-run, leading to an average price of USD 15,100 a tonne by 2022.

Nickel prices are now coming under the lens of the global investing community with prices of near-term nickel on the London Metal Exchange surging from USD 11,055 per tonne (intraday low on 24 March 2020) to the recent high of USD 12,930 per tonne (intraday high on 17 June 2020), which marks a price appreciation of ~ 16.96 per cent.

Nickel prices rose swiftly during the second half of the year 2019 to reach as high as USD 18,620 per tonne during September 2019 over the export ban imposed by the top global supplier of nickel ore- Indonesia.

To Know More, Do Read: Indonesia Export Ban to Create a Nickel Boom while Mincor and Independence Develop Assets?

However, prices then declined sharply during the beginning of the year 2020 due to impact of the COVID-19 outbreak while stabilising slightly later during April and May in the wake of supply concerns arising from the restrictions imposed by several governments to contain the spread.

Nickel Long-term Price Projection (Source: DIIS)

During the June quarter, the price of nickel over the London Metal Exchange was 6.6 per cent lower against the previous quarter to stand at USD 11,900 a tonne, which also remained 3.1 per cent down against the previous corresponding period (or pcp).

In the wake of various working and travel restrictions imposed by governments across the globe, several nickel miners were forced to cease activity, leading to production and supply woes, which in turn, slightly supported nickel prices.

Furthermore, over the status quo, the behemoth Brazilian miner- Vale trimmed its output guidance from 200,000 tonnes to about 180,000 tonnes for the year 2020, while mining activities in the Philippines was substantially halted in April.

However, despite various production halt, which recently led to the surge in nickel prices; industry experts anticipate that the commodity would witness a surplus over the short-run, but is poised to be one of the best commodity, which could witness strong growth in prices with the recovery in global economies, especially China, due to its exposure to China’s stainless steel and electric vehicle (EV) production.

While nearly 70 per cent of nickel is used in the production of stainless steel, China is emerging as the kingpin of the steel industry and is pushing in various stimulus to boost its steel industry, which is the backbone of its economy.

To Know More, Do Read: China Poised to Grab the Global Steel Trade as Economies Open up for Trade

Nickel Global Consumption and Production Scenario

The global primary nickel consumption is estimated by the Department of Industry, Innovation, and Science (or DIIS) to decline by 15 per cent on a yearly basis in 2020 as a result of shutdowns from the pandemic and its impact on the world and the Chinese construction and automotive sectors.

The reduced activity in the industrial and construction sectors across the globe has severely impacted the nickel demand so far and is further expected by the market to keep the pressure on prices. The evidence of the fall in demand could be gathered by observing the recent Chinese nickel trades, with China being one of the largest consumers of the commodity amid its considerable steel production.

The nickel ore import in China declined by 66 per cent in April 2020 on a yearly basis while declining by 35 per cent (y-o-y) for the first four-month of the year 2020.

However, while the consumption of the commodity has witnessed a material decline, the fall in the global production along with the EV related sentiments has partially offset the impact in the status quo, leading to a slight surge in prices since mid-March 2020.

The cumulative production disruptions in the global nickel market emerging from the decline in production across Brazil, Philippines along with the nickel ore export ban from Indonesia, has somewhat supported nickel prices so far; however, many industry experts project that despite several production challenges, the nickel market would witness a surplus in 2020 over a severe decline in the demand as compared to the decline in the global production.

As per the estimation of DIIS, the nickel market would soon move forward with a surplus of 43,000 tonnes in 2020 as compared to the deficit of 61,000 tonnes due to export ban imposed by Indonesia in 2019.

 EV-The Ray of Hope for The Nickel Market and Players

While the market anticipates a supply surplus for the year, a lot of speculation is currently taking place in the nickel market with many anticipating that EV market, which though only represents ~ 5 per cent of the nickel consumption, could support the nickel growth over the long-run amid improving sales and ongoing policy shifts, including subsidising sales of EV.

While global vehicles sales have witnessed a material decline due to the COVID-19 outbreak, the EV sales remained firm as compared to ICE vehicles sales. The global automotive sales (excluding the UK) plunged by 80 per cent in April 2020 while EV sales only fell by 30 per cent, which is further anticipated to witness a recovery over the medium-term in the wake of stimulus being injected by various governments.

To Know More, Do Read: Lithium Charter, Domestic Miners, And Global Stance- KDR, MIN, A40, GXY, And PLS

In a nutshell, while nickel prices have been recovering so far in the market amidst a recovery in base metals and supply woes, market expects the nickel space to witness a surplus for the year 2020 in the wake of a considerable fall in the global demand.

However, over the long-term, nickel prices are estimated to surge on the back of high steel production from China, which is currently injecting certain stimulus to boost the steel sector.

Furthermore, on the price counter, DIIS anticipates that nickel prices would decline to an average of USD 12,600 a tonne for 2020, but the supply is also projected to narrow over the long-run, which could take prices to an average of USD 15,100 per tonne by 2022.

 


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