Supply concerns are pushing up prices across the global nickel complex, as strike action at Vale's Sudbury mine in Ontario dents regional pellet availability and drives up competition for briquettes, while simmering concerns about Indonesia's latest Covid-19 lockdown push the LME three-month (3M) contract to its highest level since 25 February.
Industrial action began at Sudbury on 1 June and market participants are concerned that it could drag on as negotiations stumble, particularly as strikes elsewhere in the regional metal industry have sometimes lasted for months.
Sudbury is one of the world's few producers of nickel pellets and the temporary loss of its output is pushing more consumers to switch to battery-grade briquettes. Nickel stocks in LME warehouses, which are dominated by briquettes, stood at 229,980t yesterday, down from 231,498t a week earlier and their lowest level since April 2020. US briquette premiums rose to 35-37¢/lb yesterday, up from 25-27¢/lb a week earlier.
As briquette supply tightens, some end-users might consider switching to other nickel products, such as cathodes, for which prices are already rising as concerns build. US premiums for full truckload melting grade 4x4inch cathodes were assessed at 35-40¢/lb yesterday, up from 30-35¢/lb a week earlier. Premiums for full truckload plating grade 1x1inch cathodes were assessed at 60-65¢/lb, up from 50-60¢/lb.
Indonesia's Covid-19 surge triggers price hikes
The LME 3M nickel contract had a choppy start to July (see chart), lurching between just under $18,100/t and just over $18,500/t amid various signals from the US Federal Reserve, concerns about Chinese economic growth and exchange rate movements. But today the contract jumped decisively higher, to $18,684/t from $18,190/t yesterday, as Indonesia's latest lockdown restrictions fuelled fresh supply concerns.
It remains to be seen how the pandemic's latest surge actually affects physical volumes, with one broker noting that Indonesia's nickel mining sites are so remote that there has only been a limited impact during previous similar scares.
But the impact on prices has been building through the week, contributing to a rise in China's domestic nickel pig iron (NPI) prices yesterday — up to Yn1,210-1,240/mtu ex-works from Yn1,200-1,220/mtu ex-works a week earlier — and leading to a surge in open interest on the Shanghai exchange over the past 24 hours.
Overall, Indonesia's mined nickel production slipped to 760,000t in 2020 from 853,000t in 2019 amid Covid-19 disruptions, according to industry data. But volumes are still up significantly compared with 345,000t in 2017 and multiple new project developments are expected to push up the country's output significantly in the medium-term, such as PT Huayou Nickel Cobalt, PT QMB New Energy and Morowali Huayue Nickel and Cobalt.
The global demand outlook is strong — particularly from the battery industry — but Indonesia's anticipated ramp-ups, combined with other production hikes planned by suppliers such as Russia's Nornickel, are fuelling expectations that the global nickel market will tip further into oversupply from 2022, potentially weighing on prices.
As of June, investment bank Macquarie estimates a global nickel surplus of 7,000t in 2021, as compared with a 19,000t deficit in 2019. The bank expects this surplus to rise to 193,000t in 2023 and then narrow to 71,000t in 2025.
"We still foresee surpluses through to 2025 but now see some discipline from Chinese investors in bringing on new capacity since there will be excess supply of NPI/ferro-nickel over the next few years," Macquarie said, adding that "while risks to nickel's near-term price are to the downside, a strong post-virus global economic recovery story, combined with large-scale Chinese NPI closures in 2021, could see current prices hold for longer than medium-term fundamentals justify".
China nickel sulphate hits $4,000/t
Looking across to China, restocking activity from the battery and stainless steel industries continues to push prices higher across the nickel suite. The nickel sulphate market has been rising particularly sharply, with Argus' cif China nickel sulphate assessment hitting the $4,000/t threshold earlier this week, up from around $3,450/t cif China on 1 June (see chart).
Import demand is particularly strong because of domestic supply tightness, underpinned by a shortage of mixed hydroxide precipitate (MHP) — an intermediate product needed for nickel sulphate production. Market participants have been hoping the MHP shortage will ease a bit after Lygend began operations at its nickel-cobalt project on Indonesia's Obi island in late May. The first 5,500t of MHP were due to arrive in China in late June. It remains to be seen if Indonesia's latest Covid-19 surge will have any impact on the Obi project's operation and exports.
