Why nickel prices hit 5-month low in first half of 2024?

Recent developments in the global nickel market have witnessed a significant downturn in prices following previous highs, largely attributed to a surplus in supply. Nickel prices on the London Metal Exchange (LME) have plummeted to levels not seen since February 2024, reaching approximately $16,000/tonne (t) due to an abundance of the metal.

Indonesia's rapid expansion in the nickel industry has been a key driver of this oversupply, leading to substantial price declines from peak levels observed in 2022 and 2023. As of 19 July, 2024, the LME cash price for nickel stood at $16,240/t, marking a 24% decrease from the high of $21,270/t recorded on 21 May, 2024, according to data from BigMint. Investor sentiment has also contributed to this decline, highlighting a 15.5% m-o-m drop and potential further pressure on prices expected in Q32024.

Stock levels in LME warehouses have surged to nearly a 2.7-year high, surpassing 100,000 t, further indicating the magnitude of the oversupply challenge.

INSG's forecast for 2024

The International Nickel Study Group (INSG) forecasted a surplus of 109,000 t for 2024, following surpluses of 98,000 and 163,000 t in 2022 and 2023, respectively. Global stainless steel production expanded by 4.6% in 2023 to reach 58.4 mnt, with continued growth anticipated in China and Indonesia.

Despite slower-than-expected growth in nickel usage for electric vehicle (EV) batteries, Indonesia anticipates increased production across various nickel products, while China's nickel pig iron (NPI) production is expected to decline, offset by rising nickel cathode and sulfate outputs.

Profitability concerns have prompted closures or downsizing of facilities globally. World primary nickel production is projected to reach 3.554 mnt in 2024, with usage expected at 3.445 mnt.

Challenges in assessing global nickel surplus

The World Bureau of Metal Statistics (WBMS) reported that nearly 97.5% of global refined nickel production was utilised between January and April 2024, leaving only 2.5% as surplus, approximately 31,000 t. However, the WBMS did not specify whether this surplus included Class 1 or Class 2 nickel products.

Despite claims of surplus, actual additional production from non-Russian sources, after accounting for LME stocks and stable Russian nickel amounts to approximately 20,000 t. This challenges the notion of a significant surplus and underscores uncertainties in nickel supply dynamics, particularly as Class 1 nickel availability faces constraints from major producers like New Caledonia and Indonesia.

Historical trends in nickel supply, price

In 2023, the average cash price of nickel on the LME decreased by 15% compared to 2022. This decline was primarily driven by an increasing surplus of nickel from Indonesia, notably in the form of intermediate matte and mixed nickel-cobalt hydroxide (MHP), essential for producing battery-grade nickel sulfate, particularly in China. Concurrently, there was a decline in demand for stainless steel.

Initially observed in 2022, the surplus was predominantly in the form of Class II nickel pig iron used in stainless steel production in China and Indonesia. However, the negative impact on prices was partially offset by rising demand for nickel sulfate in lithium-ion battery materials and concerns over the availability of Class I nickel from Russia due to geopolitical tensions.

By early 2023, the surplus extended to an excess of nickel sulfate, prompting several Chinese companies to convert nickel sulfate back into Class I metal. This conversion was expected to increase Class I metal capacity by over 150,000 t by the end of 2024.

Major players' response to oversupply

The current downturn has prompted BHP Group Ltd., a major mining company, to announce the suspension of its Nickel West operations and the West Musgrave nickel project in Western Australia. Economic challenges exacerbated by global oversupply were cited as the rationale for this decision.

Starting October, BHP will halt mining and processing activities at key sites including the Kwinana refinery, Kalgoorlie smelter, and Mt. Keith and Leinster mines. Geraldine Slattery, BHP's Australia president, emphasised substantial economic hurdles driven by oversupply as the primary reason for this strategic move. BHP anticipates an underlying EBITDA loss of approximately $300 million from its Australian nickel operations for the financial year ending 30 June, 2024.

Outlook

While the nickel market grapples with oversupply and price volatility, long-term prospects remain promising driven by increasing demand from renewable energy technologies, EVs, and energy storage solutions. This resilience underscores ongoing adaptation within the sector despite current market challenges.

Looking ahead, downside risks to nickel prices are expected to persist throughout the year, with potential supply disruptions and fluctuations in the US dollar posing as factors that could mitigate substantial price declines. Increased production in Indonesia and China is anticipated to drive a surplus in the global nickel market for 2024, slightly up from 209,000 t in 2023. This surplus is primarily attributed to Indonesia's expanded production following the nickel ore export ban in 2020, with refined nickel output experiencing significant growth in early 2024.

Furthermore, measures implemented by the LME to stabilise nickel prices, including the introduction of new nickel brands and adjustments to trading practices, reflect ongoing efforts to manage market dynamics. Beyond 2024, projections suggest a gradual increase in nickel prices to $21,500/t by 2028, bolstered by growing demand, particularly from the electric vehicle battery sector, despite continued production expansions in Indonesia.