Analytics recap. Nickel. Mid-November.
Based on analysis by the Financial Times.
Nickel prices have reached a six-month high, in a continuation of the market deterioration that has been observed since March. On Monday, the three-month nickel contract briefly hit a daily trading limit of 15%, reaching nearly USD 31,000 per tonne. This was followed by a 5% increase on Tuesday after a nickel mine in New Caledonia, which supplies Tesla, reduced its fourth-quarter production forecast. According to trading sources, the volatile price movements are the result of low liquidity, which has plagued the market since the LME suspended and cancelled billions of dollars worth of nickel trades in March following an unprecedented price increase.
“The market is still very thin. What we’ve seen is the effects of low liquidity play out right in front of us,” said Geordie Wilkes, Head of Research at Sucden Financial, a metals brokerage.
Nickel, which is used to make stainless steel and batteries for electric vehicles, has had a turbulent year. Concerns about sanctions against Norilsk Nickel, a major Russian producer, coincided in March with a significant bet by Tsingshan, the world’s largest stainless steel producer, that prices would fall. Prices then proceeded to more than double in a matter of days. The recent nickel price rise of almost 25% in five days, however, is the result of optimism about the Chinese economy’s reopening and Beijing’s support for the property sector, as well as a weaker US dollar following better-than-expected inflation data. Nevertheless, Nikhil Shah, Principal Analyst Nickel Market at consultancy CRU, believes that recent good news does not justify the rally and that “we could see a big correction over the next few months.” According to Bloomberg data, the volume of LME three-month nickel contracts traded since March has been 30% lower than in the six months preceding the market turmoil.
Prony Resources, the owner of the Goro nickel mine in New Caledonia, which is partly owned by commodity trading giant Trafigura, has announced that production will be reduced in the final three months of the year due to heavy rain causing a “limited release of salt-laden liquid” from the tailings dam. On Monday, videos of a blast at an Indonesian nickel pig iron plant circulated on social media, but the site’s Chinese owner stated that production had been running normally since the end of last month. According to a nickel trader, the primary driver of the nickel price surge was a weaker dollar, which was exacerbated by low liquidity in the nickel contract: “Any supply-side issues are not material.” Nickel producers are increasingly concerned about the volatility’s negative impact. According to Jeremy Martin, CEO of Horizonte Minerals, a London-listed developer of nickel projects in Brazil, stable pricing in the USD 20,000–25,000 range would be preferable.
“What is very challenging is these very significant spikes. Everybody then goes ‘we need to have an alternative, we need to substitute’, and nickel is not that stable input commodity that we thought it was for our battery technology,” he said.