The energy transition is inevitable because fossil fuels will run out sooner or later. The demand for its key metals will increase rapidly. One of them will be nickel. However, in his case, the situation is not as simple as it may seem.
Nickel prices listed on the London Metal Exchange have fallen by 40% since the beginning of this year. Currently, for a contract per ton of this metal you need to pay about 18.6 thousand. USD.
Nickel prices remain almost 75% above pre-COVID prices. It is the highest among industrial metals and also at the forefront of all commodities overall.
Chart: Change in prices of major commodities relative to pre-pandemic levels. Source: IMF, HSBC.
One of the key factors contributing to the fall in prices was the weak economic outlook in China, and in particular the disappointing recovery in Chinese demand. The latest figures from the Middle Kingdom show that the country is still struggling to rebound from protracted COVID.
China is the world's largest producer and consumer of stainless steel, accounting for 70% of the total consumption of this metal. As a result, it is crucial to the demand for nickel.
What's more, China's demand for nickel has risen sharply in recent years. Between 2016 and 2020, the Chinese economy's demand for this metal increased by 23%, while for the rest of the world by only 2%.
Indonesia is the world's largest producer of nickel. The country has the world's largest reserves of this metal and was responsible for 36% of the global supply in 2021. However, much of Indonesia's production is a lower purity grade 2 material used to make stainless steel.
The next largest producers are the Philippines with 13% of world production and Russia with 9%. The demand for nickel for clean energy technologies in 2040 is expected to be 6 to 19 times higher than in 2020. In 2021, 2.7 million tons of nickel were produced.
Stainless steel accounted for about 64% of nickel demand in 2022. However, this metal is also used in the manufacture of batteries and accumulators, and its use has increased significantly in recent years. In 2021, about 13% of global nickel consumption was on battery cathodes, up from less than 3% just six years earlier.
Nickel demand from batteries accounts for only about 15% of total demand in 2022, but it is still the dominant growth driver. HSBC analysts estimate that by 2027 it will account for 28% of total demand.
They also believe that the nickel market will remain in surplus in the short term due to strong production growth.
“Weak demand and rising supply continue to affect prices. The prices of nickel semi-finished products have also come under pressure, as have the prices of other raw materials for the production of batteries. The announcement of an extension of tax credits for electric vehicles in China may provide some support, but we believe that in general the nickel market will have a surplus due to strong production growth and we believe that the price drop reflects these market conditions,” HSBC analysts noted.
“We expect that China's stainless steel production will increase by about 3% rdr in 2023, lower than previously expected due to slower than expected demand growth and weak macroeconomic data in recent months. We forecast that China's stainless steel production will grow at a rate of about 4.5 percent per year in 2023-2027,” HSBC experts said.
“On the supply side, we predict that refined nickel production will increase by 10% year-on-year in 2023, and the average growth rate in 2023-2027 will be 7.1%” - they added.
Indonesia is likely to be the biggest driver of growth in refined nickel production.
“We forecast that Indonesia will account for about 50% of the increase in refined production over the next five years. The next driver of supply growth will be China, which we believe will account for about 40% of the increase in refined production over the next five years,” HSBC analysts said.
According to HSBC, There is a surplus in the nickel marketbecause strong growth in supply outstrips growth in demand.
“However, with the continuous increase in demand from the electric vehicles, after the completion of current projects, a larger supply may be required. Nevertheless, we are aware of the risks arising from the change in the chemical composition of batteries and the potential increase in secondary supply from recycled batteries, which could offset the depletion of mines in the long term,” HSBC forecasters said.
ING forecast assumes an increase in nickel prices to an average of 20 thousand. USD per ton in 2024 and 23 thousand USD in 2025.
“We predict that Nickel prices will remain under pressure in the short term, as the global market surplus is growing and the slowdown in the global economy is limiting the demand for stainless steel. We expect prices to average (...) 20 thousand. USD per tonne in Q4 2023. However, the declines will be limited due to the tense situation on the London Metal Exchange market,” Commodity Market Analysts at ING said.
”However, prices should remain at an elevated level compared to average prices prior to the historical short squeeze of nickel prices on London Metal Exchange due to the role of nickel in the global energy transition. The attractiveness of the metal to investors as a key “green” metal will support price growth in the long term. In electric vehicle batteries, nickel increases their energy density and increases driving range,” ING analysts said.
Analysts at HSBC are of the opposite opinion, according to them, in 2024, the price will average 19.8 thousand. USD and will remain at this level in 2025.
In turn, commodity market experts from MUFG bank believe that in 2024 we will see prices lower than 19 thousand. USD per ton of nickel, and in 2025 we will witness a rally to 23.5 thousand. USD.
Source: https://www.fxmag.pl/artykul/cena-metalu-mocno-w-dol-po-spekulacyjnym-szale-co-dalej-zobacz-prognozy
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