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“The current nickel price levels aren’t enough to incentivize more nickel supply,” Denis Sharypin, head of market intelligence at Norilsk Nickel, told delegates at Metal Bulletin’s sixth International Nickel Conference on Thursday May 31 in Toronto, Canada.
The London Metal Exchange’s three-month nickel contract has risen substantially this year, though industry experts said it still isn’t high enough to generate additional supply. The contract closed at $15,210 per tonne on May 31, a 19.5% increase from $12,730 per tonne on January 2, the first trading day of the year.
American Metal Market’s US briquette and 4×4 cathode premiums were assessed on May 29 at 28-35 cents per lb and 35-45 cents per lb, respectively. The premiums have not changed since American Metal Market launched the prices on March 13.
Frank Nikolic, Vale’s manager of market intelligence for base metals, said prices would have to exceed $18,000 per tonne “for capital to be devoted to the market.” And how long they stay above that level is another key factor, said Barry Jackson, principal market analysis for nickel, at AngloAmerican Marketing Ltd.
Although much of the nickel market is expecting a massive boost in demand from EVs, “there’s a fair degree of uncertainty over how those demand projections will rise,” Jackson said. Large mining companies need the price to remain above $18,000 for about 18 to 24 months to feel “comfortable” enough to invest in a nickel project, he said. Sharypin added that cobalt prices may also play into when more nickel production might come online. The higher the cobalt price, he said, the more battery producers will be interested in putting additional nickel into batteries to reduce the cobalt content and cut the price.
Metal Bulletin’s benchmark low-grade cobalt price stood at $42.25-$43.50 per lb in-warehouse on May 30. High-grade cobalt prices were assessed at $42.25-$43.50 per lb in-warehouse.
Substitution for nickel in EVs not a threat Even though additional supply has yet to come online, industry experts broadly agreed that substitution was not a threat to nickel and that it is only a matter of time before nickel demand stemming from EVs rises dramatically.
Not only does nickel have a high energy-storage capacity, but nickel-cobalt-manganese batteries are already the top choice for EV producers, Nikolic said. “We’re quite confident that nickel is here to stay for 10 to 15 years.”
Jackson agreed, adding that while a number of alternatives to high-nickel-content, lithium-ion batteries have been mentioned, “you need to follow the money. And the money is being invested in lithium-ion batteries.”
Furthermore, the automotive industry follows a long pipeline, said Mark Selby, president and chief executive officer of Royal Nickel Corp. “To design a car, build a plant to build it, source material, that’s an eight-to-10-year time frame. And you’re trying to balance safety. I think we’re good for 10 to 15 years, if not more.”
Stainless steel a strong market for nickel Industry experts also agreed that the underlying fundamentals of the nickel market are largely positive, particularly in the stainless steel market, which consumes 70% of global nickel production.
“EVs get a lot of focus now, but there’s robust growth in stainless steel,” Selby said. Projected annual demand growth of 5% for nickel until 2025, which will be largely driven by stainless steel demand, translates into approximately 1 million additional tonnes of nickel necessary “just to meet trend growth,” he said.
Jackson said stainless steel consumption has increased in particular in China following the country’s economic slowdown in 2015. Demand will only continue to grow with China’s rising population, the growth of the middle class and the One Belt, One Road development initiative.
Higher nickel prices aren’t a threat to the stainless steel industry, mainly because whatever substitution could happen has already happened, industry experts said.
“Where people and companies can move away from 300-series stainless steel, they have,” Jackson said, adding that certain types of industries, such as oil and gas and food and beverage, can’t risk moving away from certain grades of stainless steel for safety reasons.
“Industries would’ve already substituted if they could during the last price spikes of nickel,” Sharypin said.
Lack of global nickel supply Another bullish factor for the nickel market is that not only is there tight supply now, there are very few projects coming online in the years ahead.
According to the International Nickel Study Group (INSG), the global refined nickel market had a deficit of 77,432 tonnes for January-November 2017, up from the previous year’s level of 51,942 tonnes.
Nickel stocks on the LME totaled 290,604 tonnes on Thursday, down 76,008 tonnes – or almost 21% – from 366,612 tonnes on January 2. Stocks on the Shanghai Futures Exchange (SHFE) totaled 32,286 on May 25, a decline of 16,634 tonnes – or 34% – from 48,920 tonnes on January 5.
But despite the nickel market being in a deficit and stocks tumbling on both the LME and SHFE, producers aren’t bringing more material online.
“When you step back and look at the overall supply picture, there are very, very few projects coming online over the next eight years,” Selby said.
Producers have hesitated to bring more projects online due to low prices and a potential oversupply of nickel, with Indonesia relaxing its export ban on unprocessed ore in January 2017, though the country has actually produced much less than anticipated.
“Indonesia exported 5 million tonnes [of nickel] in the past year. That’s an underperformance of that supply and why there’s such a big deficit,” Jackson said.
Selby agreed, adding, “My view on Indonesia is, bring it on. We’ll need that supply.”