Nickel prices on the London Metal Exchange (LME) surged to near-seven-year highs last week, driven by low warehouse stocks that pointed to tight supply and China’s efforts to support its economy that strengthened outlook for demand.
The three-month nickel contract on the LME rose to $21,025/t in the official morning session on 23 November, the highest since 13 May 2014 and a 9.6pc increase from 18 November, when nickel was at $19,187.50/t. The price fell on 26 November to $20,062.50/t, as the discovery of a new highly mutated coronavirus variant shook market sentiment, but direction in the current quarter has been strong, hovering at about and then above the key $20,000/t threshold.
Nickel has been the outlier among the tradeable LME base metal contracts this quarter. From a low of $17,805/t on 5 October, the three-month nickel contract jumped by 18.08pc to the $21,025/t high it touched this week. In contrast, the three-month aluminium contract has been on a downward trajectory this quarter, falling from a high of $3,199/t on 18 October to a low of $2,521/t on 5 November on low demand, with automakers affected by semiconductor shortages content to limit purchases through to the end of this year.
Nickel has evaded this slowdown in demand. Finland-based stainless steel producer Outokumpu pointed to a long order book for this quarter, despite disruptions in the wider automotive industry and elevated raw materials, energy and consumables prices. Spanish stainless steelmaker Acerinox also mentioned strong demand and a positive backlog despite the global semiconductor shortage.
The three-month copper contract jumped sharply at the start of this quarter to $10,272.50/t on 18 October amid a swift decline in inventories and tightened supply prospects, but it has since fallen back to settle under the $10,000/t mark after the LME moved to impose new rules and regulations on the market.
One of the main drivers for nickel’s outperformance of the rest of the base metal sector is the sharp drop in availability as inventories in the LME warehouse system have continued to decline this quarter. Global on-warrant nickel stocks fell by 43.07pc in this period to 59,562t on 26 November, the lowest level since December 2019. On-warrant nickel inventories in LME-registered warehouses have fallen by 70.77pc from 203,778t on 21 April.
On the demand side, China’s stainless steel sector has responded strongly to recent moves by the country’s authorities to calm concern over economic slowdown. China’s State Council has urged local governments to raise special bond sales to boost domestic demand and step up construction projects, in a bid to stall an economic slowdown.
Positive demand signals and easing concerns over the property sector in the world’s second-largest economy have also strengthened the outlook for nickel prices. Chengdu, a city in the southwest of China, has reportedly rolled out measures to support property developers by boosting liquidity, ensuring they receive funds from pre-sold properties and fresh loans. The local government is the first to do so, with analysts expecting more to follow, rekindling confidence in the sector.
Overall global nickel availability has also been hampered by disruptions to most large global producers this year. Output at 16 major nickel-producing assets is estimated to be 123,000t behind guidance in 2021, according to analytics firm Cape Noir’s managing director, Piers Montgomery. Major assets — including those of top producers Vale, Glencore and Norilsk (Nornickel) — are scheduled to miss 2021 production guidance as set out in their respective fourth-quarter 2020 results.
Montgomery said the disruption to nickel output this year has been a driver for a surge in prices and that the current supply crunch is likely to be a short-term phenomenon that will be alleviated by the large volumes of new refined nickel supply coming on line in Indonesia over the next 18 months.
This view was echoed by Yang Bo, a nickel expert at the Xiangyu Group Research Institute, who said earlier this month that the world’s nickel supply and demand growth is likely to be in sync in 2022, given the development of new projects on the nickel production and consumption sides.
The growth in 2022 from the supply and demand sides is expected to be 300,000-350,000t. The supply increase will come mainly from Tsingshan’s nickel matte project in Indonesia, Huayou Cobalt’s nickel-cobalt mixed hydroxide precipitate (MHP) projects in Indonesia and Ningbo Lygend’s Indonesia MHP plant. The new energy battery materials and stainless steel sectors will account for most of the growth in demand.
