Benchmark nickel on the London Metal Exchange (LME) fell below $15,000/t for the first time since October 2020 at the end of last week as the ongoing strength of the US dollar, increasing Class 1 oversupply and sluggish physical demand combined to sink the contract to a fresh low.
The three-month nickel contract fell to $14,995/t on 3 January, the lowest since 8 October 2020. The official price recovered this week and was at $15,380/t in today's official trade as the US dollar moved lower on reports that US president-elect Donald Trump is scaling back plans to impose sweeping tariffs on imported goods. Near-term direction is likely to be determined by a combination of macro factors, supply-demand shifts and Indonesian nickel pig iron (NPI) prices.
The global refined nickel market was in a surplus of 135,000t last year, according to Australian bank Macquarie. Russian Class 1 nickel producer Norilsk Nickel (Nornickel) pegged the total market surplus at 150,000t, approximately 130,000t of which is connected to high-grade production. The continuing rapid surge in processing capacity for Class 1 nickel metal in Chinese and Indonesian refineries is due to drive a rise in LME-held stocks to provide the biggest source of price downside this year, with Macquarie's research indicating 300,000t of new Class 1 refining capacity is due to come on line during 2024-26. Market participants surveyed by Argus through December said that Class 1 fundamentals are becoming aligned with the surplus story around other battery metals such as cobalt and lithium, with refined nickel due to be in structural oversupply for years to come on rich upstream and downstream Chinese investments.
The rise in Chinese and Indonesian origin high-grade nickel supply is set against a tight Class 2 space, driven by a drop in global production of nickel pig iron (NPI) and ferro-nickel. Macquarie said ferro-nickel and NPI output is projected to drop by 3pc year on year in 2024 even as global stainless steel production rises by 3.5pc. But over the same period, Indonesian and Chinese Class 1 and nickel sulphate output is expected to grow by 30pc year on year, adding 200,000t of nickel units in the market. This supply glut together with capabilities that allow NPI to be converted to LME-deliverable metal (via matte) will keep LME prices near the marginal cost of NPI plus conversion. Current NPI-class 1 conversion costs are pegged at $3,500-4,000t, market participants told Argus.
The spread between benchmark nickel on the LME and the Argus assessment for NPI 10-14pc China main port duty unpaid fell from $6,720.44/t at the end of the second quarter of 2024 to $4,093.33/t at the end of December. Three-month nickel on the LME shed 14.5pc in the second half of 2024, while the Argus NPI assessment rose by 2.23pc over the same period to show a closer alignment of the global benchmark with NPI conversion costs.
The narrowing of this spread is likely to increase the positive correlation between nickel prices and nickel ore prices this year. Tight ore supply in New Caledonia and Indonesia led to a surge in nickel ore prices in 2024, which also raised downstream NPI prices. Market participants told Argus that Indonesia could pursue a strategic reduction of ore licences (RKAB) in 2025 to support prices given weak demand-side fundamentals and the pressure on the government to preserve margins for domestic producers. French nickel mining group Eramet revised down its 2024 ore production guidance at PT Weda Bay Nickel to 29mn wmt in October from an initially expected 40mn-42mn wmt because of permit restrictions.
LME nickel is expected to find price support at the higher end of $15,000-16,000/t this year. A move above this range depends on further supply side cuts. Macquarie identified output cuts of 100,000-150,000t in Indonesia and 400,000t in the rest of the world over the past two years, driven by tight ore supply and falling Class 2 production in Indonesia and the inability of non-Indonesian suppliers to compete. A demand-side recovery in key consumption markets could also widen price bands for nickel on the higher end, as Nornickel projects nickel demand growth in the battery market to rise to 42,000t this year, up from 19,000t in 2024.
