Nickel prices have been volatile in the first eight months of this year, with the metal starting 2021 at $17,344 a tonne. Underpinned by strong Chinese economic recovery after the COVID-19 pandemic, the metal rose past $19,000 a tonne in early February and hit a seven-year high at $19,533. The commodity subsequently reached a fresh high at $19,689 a tonne on 22 February before falling in March, where it stayed around $16,000 until late April.
The price rally was halted when China’s Tsingshan Group – the world largest stainless steel and nickel pig iron (NPI) producer – said it was planning to produce battery-grade nickel at its Indonesian operations. This news undermined the narrative of a battery-grade nickel supply shortage, which was the driving force of the rally in the first quarter.
Since 22 April, the nickel price trend climbed steadily higher peaking at $19,892 a tonne on 30 July – the highest year-to-date price – before dropping back in August to hover around the $19,000 level.
In October the price rose to $20,385 a tonne in trading on the London Metal Exchange. The price is being supported by lower supply and recovering demand as the world economies start reopening as the restrictions wrought by the pandemic are eased.
Nickel price history
According to the historical nickel price chart, the commodity hit an all-time peak of $51,600 a tonne in 2007 but collapsed shortly after that, as Chinese factories found an alternative cheaper form of nickel – nickel pig iron or NPI – for the country’s stainless-steel production.
China started to produce various grades of NPI in 2005 to feed the growing stainless-steel industry in the country. NPI replaced the traditional raw material such as nickel and stainless-steel scrap. As NPI production grew rapidly in China reaching more than 160,000 tonnes in 2010, this led to reduced demand for nickel and contributed to the price crash.
Although NPI production fell to an estimated 605,000 tonnes in 2020, output is expected to rise in 2021 as China and Indonesia ramp up capacity. Two of the biggest operations are in Indonesia; Morowali Industrial Park, with more than 213,000 tonnes capacity, and the 90,000-tonne Weda Bay Industrial Park.
The expanding global production capacity is likely to keep nickel prices from returning to their all-time high.
Global operation disruption temporarily tightens nickel supply in 2021
Russian high-grade nickel producer Nornickel expects output to fall this year after operations at its Oktyabrsky and Taimyrsky underground mines in Russia were temporarily suspended in the first half of 2021. Nickel output in the first half of this year fell 26% year-on-year to 79,000 tonnes, according to Nornickel’s production result.
Mining operations were halted because of groundwater inflow at the sites. The Oktyabrsky mine resumed full production by mid-May while Taimyrsky is expected to return to full capacity by the end of November.
Commodities producer and trader Glencore’s nickel operation at Australia and New Caledonia were also disrupted in the first half of 2021, leading to lower production at 47,700 tonnes in the first six months, 14% below the same period last year.
Vale’s nickel operation in Sudbury, Canada resumed production in the second week of August following industrial action that had been taking place since 1 June. The producer and the union agreed a new five-year collective bargaining agreement on 4 August, which ended the two months’ labour disruption.
In October it was reported that the nickel pig iron market in China continued to be very tight due to power rationing and some supply concerns from Indonesia and the Philippines, accordingn to the ING Group. Nickel pig iron is low grade nickel invented in China as a cheaper alternative to pure nickel for stainless steel production.
Recovering stainless steel demand supports nickel prices
Stainless-steel production accounted for more than two-third of nickel demand in 2020, while the use of batteries in electric vehicles (EVs) remained low at 6%, according to data from industry members’ association the International Nickel Study Group (INSG).
As a result of the impact of COVID-19, demand for stainless-steel products (white goods, automobiles, etc) fell in 2020. Primary nickel usage fell to 2.39 million tonnes in 2020, down 0.8% from 2019.
On 28 April, INSG said in a report: “The COVID-19 pandemic negatively impacted the world economy and brought a high level of uncertainty last year. In 2021, a progressive recovery of the main economic indicators is expected.”
“Strong growth [in stainless-steel production] is anticipated in 2021, especially in Indonesia. The electrification of vehicles will continue to have a positive impact on nickel usage through the use of nickel sulphate in batteries.”
With the global recovering demand in 2021, INSG forecast nickel consumption to jump to 2.673 million tonnes this year, up by 12% from 2020.
Higher stainless-steel output in China also supports INSG’s positive demand forecast in 2021.
China is the world's largest stainless-steel producing country and output in the first half of 2021 jumped to 16.24 million tonnes, up 20.8% from the same period last year, data from the Stainless Steel Council of China shows. Stainless-steel consumption in China also rose sharply by 24.2% year on year to 2.7 million tonnes in the first half of 2021.
This rebounding stainless-steel demand helped to boost nickel prices in August but the overall nickel supply continued to outstrip demand.
The nickel market surplus was estimated at 45,000 tonnes this year, down from the 108,000 tonnes surplus in 2020, according to INSG.
Growing nickel use in EV batteries to tip the market into deficit?
With the number of EVs set to rise over the coming decade as more countries implement emission-cutting policies, nickel usage in EV batteries is expected to grow quickly.
Nickel demand in the EV sector could grow to 600,000 tonnes by 2025, accounting for 24% of the 2.5-million tonne global nickel market, according to Will Adams, head of base metals and battery research at metal price reporting agency Fastmarkets.
This led some in the market to believe that the nickel market could tip into deficit by 2030 as supply would lag demand. The growing demand in EVs batteries underpinned the bullish nickel price forecast between 2024-2025 for Morgan Stanley and Fitch Solutions.
According to the Nickel Institute, there is increasing use of nickel in lithium-ion batteries and this trend looks set to grow. Two of the most commonly used types of batteries, Nickel Cobalt Aluminium (NCA) and Nickel Manganese Cobalt (NMC) use 80% and 33% nickel, respectively.
INSG said: “World primary nickel production was 2.37 million tonnes in 2019 and 2.49 million tonnes in 2020, and is forecast to reach 2.72 million tonnes in 2021.
“However, there is a degree of uncertainty in these figures, especially with regard to Chinese and Indonesian NPI production. The estimates do not include any adjustment factor for possible production disruptions.”
So, what is the nickel price outlook for the next few years?
Nickel price predictions: where will the commodity be in the next five years?
Investment bank Morgan Stanley’s nickel price forecast for 2021-2025 is below $18,000 a tonne. In the meantime, consultancy Fitch Solutions expects the commodity to average $16,500 a tonne in 2021 and $16,540 in 2022 but rise above $17,000 a tonne by 2023, with the uptrend to continue into 2025.
When considering analyst commentary, it’s important to bear in mind that they can get their estimates wrong. You should always do your own research, taking care to consider all relevant market conditions.
The price of nickel is largely driven by supply and demand. As high-grade nickel is an essential metal for batteries in electric vehicles, speculation in growing EV demand has boosted nickel prices. In addition, nickel productions have been disrupted by the COVID-19 pandemic in 2020 and other disruptions continue in 2021, which led to reduced supply temporarily, supporting prices over the past year.
The price of nickel is largely driven by supply and demand. Higher EV and stainless-steel demand will probably support the market. Supply is also a key factor as disruptions in global mining operations and productions will also affect nickel price.
The growing use of nickel in EV batteries has supported prices. However, whether it’s the right investment for you depends on your investment goals and portfolio composition. You should do your own research and never invest money you cannot afford to lose.
Nickel is more expensive to mine and produce than copper, hence why the price of nickel is higher than that of copper.
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