Viewpoint: LME nickel grapples with identity crisis
This has been a year of crisis for the nickel market, having struggled to recover after being hit by the twin shocks of the Russia-Ukraine conflict and a vicious short squeeze in the first quarter.
Trading volumes in the global benchmark nickel contract on the London Metal Exchange (LME) have collapsed amid reduced trading hours, prices have swung wildly and decoupled from the physical market, and the declining share of LME-deliverable nickel in world supply and consumption has brought into question the future utility of the index as a global price reference.
Nickel prices traded over a range of $21,375-31,275/t in the fourth quarter of this year, with the wide spread attributed chiefly to poor liquidity, down by 40-60pc relative to the period before March's short squeeze that has exacerbated the effect of falling on-warrant inventories in LME warehouses.
On-warrant LME nickel stocks recently hit a 14-year low and have stayed below 50,000t for much of this year, accounting for less than two weeks of global demand to support underlying prices.
The LME faces a major challenge as physical trade increasingly moves on from LME-deliverable nickel to Class 2 and intermediate products, with the so-called Class 1 nickel's supply share of the global market set to drop to 20pc this year, compared with 50pc in 2012.
Nickel briquette constituted 17pc of raw material supply in Chinese nickel sulphate production for the electric vehicles (EVs) market this year, but its share is set to drop to 7pc in 2023 in favour of nickel matte, the use of which is set to rise from 27pc to 38pc over the same period.
According to Australian financial services group Macquarie, 70pc of the world's saleable nickel is currently priced lower than the LME benchmark, indicating a divergence in a market where Class 1 supply-demand fundamentals are tight but Class 2's are in surplus.
Prices of nickel pig iron (NPI), a Class 2 product used in stainless steel production that accounts for half of the world's nickel supply, best illustrate the decoupling. The Argus assessment for NPI min 10pc ex-works China at the beginning of the fourth quarter was at 88.4pc of LME nickel cash official price to 1,330 yuan/mtu ($19,062/t), but was last assessed at 70pc to Yn1,330/mtu ($19,993/t) on 21 December.
Macquarie expects both Class 1 and Class 2 nickel to be in oversupply in 2023 as consumption of Class 1 in nickel sulphate production for the EV market drops — replaced by intermediate products matte and mixed hydroxide precipitate (MHP) — with LME cash nickel prices forecast to fall to $22,500/t from an average of $24,951/t in the fourth quarter of this year. But the group sees no downside to futures prices at below the $20,000/t level either, arguing that any pressure emanating from bearish macro indications and a downturn in stainless steel demand will be outweighed by support from the rapidly expanding global EV battery market and producers' need to hedge medium-term prices.
Dutch investment bank ING echoes Macquarie's sentiment that $20,000/t is the floor price for nickel in 2023, but mainly because it expects the tightness in Class 1 nickel availability to continue amid an emerging overall structural surplus in the market. According to the bank, prices will be driven chiefly by the stainless steel market, particularly in China, and even as demand from the EV battery sector grows rapidly, growth will not be sufficient to offset a slowdown in traditional sectors such as construction.
"We see [benchmark nickel] prices hovering at between $20,000/t and $20,500/t over the first two quarters of 2023 before gradually increasing to $21,000/t in the third quarter and $22,000/t in the fourth quarter as the global growth outlook starts to improve," ING commodities strategist Ewa Manthey said.
All roads lead to Indonesia
Indonesia remains the epicentre of Class 2 nickel supply growth.
According to research consultancy Wood Mackenzie, as many as 27 new NPI lines are scheduled to be operational in Indonesia next year, with NPI accounting for 70pc of China's raw material usage in 300-series stainless steel production against refined nickel's 3pc.
Russian nickel producer Norilsk Nickel (Nornickel) has forecast Indonesian NPI output to rise by 13pc on the year to 1.304mn t in 2023.
Large new capacities in the intermediates space are also scheduled to start operating in the country next year, eating into demand for LME nickel while using the benchmark as a pricing mechanism all the same. The greatest supply of new MHP will come from PT Huafei, joint venture between Huayou Nickel and Cobalt and Tsingshan, which is set to become operational next year with a nameplate capacity of 120,000 t/yr of nickel. And it is possible that more than 200,000t of nickel in matte will also come on line in 2023.
Russian supply is key
Price forecasts for 2023 are set against the backdrop of ongoing risks surrounding Russian supply.
Nornickel, the largest producer of LME-deliverable nickel that accounts for approximately 200,000t of supply, remains untouched by western sanctions but is having to battle the economic fallout of the Russia-Ukraine conflict, logistical problems in getting feed to its Harjavalta refinery in Finland and a degree of self-sanctioning from western buyers.
Market participants surveyed by Argus in the past week noted reports that Nornickel is considering cutting its 2023 supply by 10pc relative to this year's planned output of 205,000-215,000t on lower expected uptake in Europe, which constitutes half of its total sales, and the emerging nickel surplus.
"Ultimately, they [Nornickel] have to be worried that if a lot of their material finds its way into LME warehouses, the prospect of LME prices trading at heavy discounts to the actual market becomes high," a trading firm said.
Heading into 2023, the nickel market's foremost concern remains the prevailing volatility in benchmark prices, with only a restoration of trust in the three-month nickel contract by the LME or a switch to an alternative exchange contract said to present the way forward. And with rising Class 2 supply, market participants in the new year will also be forced to consider whether a single price reference is feasible and can accurately reflect a highly fragmented physical space. Until volumes pick up again and market confidence is restored, the market will have to brace itself for persistent disruption to pricing mechanisms in the near term.
Related news posts
Fortescue hold firms on 2024-25 iron ore target
Fortescue hold firms on 2024-25 iron ore target
Beijing, 30 August (Argus) — Australian iron ore producer Fortescue has reiterated its iron ore shipment target for the 2024-25 fiscal year ending 30 June of 190mn-200mn t, including 5mn-9mn t from its Iron Bridge project on a 100pc basis. The Iron Bridge magnetite project in Western Australia shipped its first cargo in July last year, with Fortescue's iron ore shipments totalling 191.6mn t for the full year . It had targeted to ship 192mn-197mn t for 2023-24. The company achieved a hematite average revenue of $103/dry metric tonne (dmt), up by 9pc on a year earlier. Hematite C1 costs for 2023-24 rose by 4pc from the previous year to $18.24/wet metric tonne (wmt) because of higher labour rates and mine plan driven cost escalation, although Fortescue said its cost control measures offset the partial increase. It forecasts hematite C1 costs for 2024-25 to rise to $18.50-19.75/wmt. The Argus ICX seaborne iron ore fines assessment for 62pc Fe cfr Qingdao averaged $119.40/dmt for 2023-24. Fortescue is on track to achieve real zero, or no fossil fuels and no offsets, for its scope 1 and 2 terrestrial emissions across its Australian iron ore operations by 2030. It is aiming to achieve this with building a new solar farm, deployment of electric excavators and the use of battery electric and hydrogen fuel cell haul truck prototypes. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
US OCTG, line pipe imports fall in July
US OCTG, line pipe imports fall in July
Houston, 29 August (Argus) — Preliminary data from the US Department of Commerce shows that imports of oil country tubular goods (OCTG) and line pipe products fell in July. OCTG volumes fell by 88,100 metric tonnes (t) from the prior year, as volumes from Japan dropped by 15,500t, South Korea and Thailand both dropped by 13,500t, and volumes from Vietnam and Mexico fell by 11,300t and 9,300t, respectively. Volumes of line pipe less than or equal to 16in fell by 12,300t, as Italian volumes dropped by 4,500t, Ukraine dropped to zero from 4,400t in the prior year, and Brazilian volumes fell by 3,100t. Standard pipe imports increased by 13,400t on a 7,900t increase from Turkey. Heavy structural shape volumes jumped by 39,700t as Spanish volumes increased by 21,700t from the prior year, and imports from Germany rose by 9,200t. By Rye Druzchetta US pipe and tube imports metric tonnes Product Jul-24 Jul-23 Volume change ±% Jun-24 OCTG 95,792 183,909 -88,117 -47.9% 126,760 Line pipe 69,387 80,875 -11,488 -14.2% 87,976 Standard 66,100 52,716 13,384 25.4% 76,317 Heavy Structural Shapes 107,979 68,253 39,726 58.2% 54,096 US Department of Commerce July 2024 data is preliminary data, which is subject to change. Line pipe is all diameters. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Higher flats volumes lead US steel imports up
Higher flats volumes lead US steel imports up
Houston, 29 August (Argus) — Higher volumes of flat steel imports led overall US steel imports higher in July. Total US steel imports for consumption were 2.2mn metric tonnes (t) in July, according to preliminary data from the US Department of Commerce. Hot-rolled coil (HRC) imports rose by 22,600t from the prior year, driven by a 32,900t jump in Japanese volumes, which were offset slightly by a 9,200t drop from Canada. Cold-rolled coil (CRC) volumes were up by 37,000t in July, with Canada exporting 8,800t more than the prior year. Hot-dipped galvanized (HDG) coil imports from Brazil jumped by 17,200t from the prior year, while volumes from Mexico rose by 13,000t. Volumes of blooms, billets and slabs dropped by 121,900t, as Mexico's volumes dropped to zero from 95,800t in the prior year. By Rye Druzchetta US steel imports metric tonnes Product Jul-24 Jul-23 Volume change ±% Jun-24 HRC 156,952 134,326 22,626 16.8% 156,861 CRC 172,746 135,778 36,968 27.2% 113,400 HDG 233,511 165,607 67,904 41.0% 238,809 Blooms, billets, slabs 364,138 486,053 -121,915 -25.1% 395,478 Total (all items)* 2,197,347 2,153,126 44,221 2.1% 1,955,800 US Department of Commerce July 2024 data is preliminary data, which is subject to change. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
ThyssenKrupp Steel executives leave as tensions rise
ThyssenKrupp Steel executives leave as tensions rise
London, 29 August (Argus) — Seven board and supervisory board members of ThyssenKrupp Steel Europe have left their positions given deepening strife with the chief executive of parent company ThyssenKrupp. There has been an ongoing dispute between ThyssenKrupp chief executive Miguel Lopez and board members of ThyssenKrupp Steel Europe, including the latter's chief executive Bernhard Osburg, for some months now over the future of the business. Osburg and two other board members from Steel Europe have now stepped down, as has the chairman of the Steel Europe supervisory board Sigmar Gabriel and three other supervisory board members. The members have "lost all confidence in the will and ability of the chairman of the executive board of ThyssenKrupp AG to co-operate appropriately", Gabriel said in a note after a meeting today. He said Lopez has carried out an "unprecedented" and public campaign against the executive board of Steel Europe, damaging its ability to act and breaching trust. The Steel Europe board had proposed a plan to align the business' production to its recent shipments, meaning a decline from about 12mn t/yr to 9mn t/yr, and to exit from steelmaker HKM's joint venture with Salzgitter and Vallourec. HKM is viewed as a high-cost slab producer. However, Lopez felt the plans did not go far enough to restructure the business, calling for a deeper reorganisation and reduction in headcount. A spokesperson for union IG Metall said it "strongly" supports Osburg and the outgoing chairman, and criticises the actions of Lopez. The union is not legally allowed to call for strike action, but has called for protests over the departures. One executive said the dispute could threaten the future of Steel Europe as an entity. By Colin Richardson Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
![Generic Hero Banner](/_next/image?url=%2F-%2Fmedia%2Fproject%2Fargusmedia%2Fmainsite%2Fimages%2F14-generic-hero-banners%2Fherobanner_1600x530_generic-c.jpg%3Fh%3D530%26iar%3D0%26w%3D1600%26rev%3D8ec86dce0f724687bd325a9a917cffae%26hash%3D9FD39B08C9D84A160C91A3649C40A186&w=3840&q=75)
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more