There Will Be Two Different Trends in The Supply And Demand Of The Nickel Market in 2022

There will be two different trends in the supply and demand of the nickel market in 2022

According to foreign media reports, driven by the stainless steel industry in the traditional main consumer market and the fast-growing battery end-use industry, global nickel consumption soared by 16.2% last year. As a result, there was a shortage of 168,000 tons of nickel supply, the largest supply and demand gap in at least 10 years, according to the latest statistical report of the International Nickel Research Group (INSG, International Nickel Study Group).

INSG expects consumption to grow by another 8.6% this year, surpassing 3 million tons for the first time in history. However, even rapid expansion cannot keep up with INSG's projected supply growth rate. INSG expects that driven by Indonesia's new production capacity, global nickel supply is expected to increase significantly by 18.2%. INSG predicts that a slight surplus will reappear this year, with an excess of about 67,000 tons, but whether it will cause prices to fall is still controversial.

01

Soaring demand

INSG predicted in April last year that global nickel demand will rebound by 9% after the epidemic in 2021. But in fact, the recovery rate is far faster than expected. Stainless steel is still the biggest driving force for nickel consumption. Last year, global stainless steel production reached 56.3 million tons, an increase of 10.6%, according to data from the International Stainless Steel Association (ISSF, International Stainless Steel Forum). China, the world's largest stainless steel producer, experienced a sharp decline in the second half of last year, resulting in an annual production increase of only 1.6%. However, production in other countries has increased significantly, with Europe showing the fastest growth since 2010, and Asian countries other than China have soared by 21.2%.

It is inconclusive how long this strong growth will last. As lockdown measures have suppressed demand for consumer durables containing stainless steel, China's production has declined further in the first few months of this year. Fortunately, the demand for nickel caused by the slowdown in stainless steel production has been compensated by the fast-growing power battery industry.

Not all batteries use nickel, especially in China, but because the demand for this metal for electric vehicles is growing so fast, the growth rate of nickel demand is still very high. Adamas Intelligence predicts that in March, the global demand for nickel for new electric vehicles on the road reached 18,610 tons, an increase of 50% year-on-year. (Monthly Battery Raw Material Usage Report, ‘Monthly Battery Raw Material Deployment’).

Goldman Sachs predicts that the demand for nickel in the electric vehicle battery industry will increase by 62% to 285,000 tons this year, and will continue to grow by 26% to 358,000 tons in 2023 ("Nickel Classification and Classification", "Nickel's Class Divide", April 28, 2020).

02

Supply wave

Indonesia has positioned itself as the biggest beneficiary of this battery boom. Historically, the country was once a major supplier of nickel ore, and then became a supplier of nickel-iron to China's stainless steel industry. At present, the country relies on its huge nickel reserves to stimulate investment in battery-grade metals, or at least to be able to produce some kind of nickel product that can then be processed into the sulfate required for battery anode materials. Last year, Indonesia's nickel production increased by 34.4% to 1.04 million tons of metal, accounting for almost 40% of global production. Its growth rate is still accelerating. According to INSG's statistics, the year-on-year growth rate in the first two months of 2022 was 38.2%.

The transition from nickel for stainless steel to nickel for batteries has begun to show, manifested in intermediate products exported to China, with exports reaching 55,000 tons in the first quarter. Considering that many producers in Indonesia are using innovative processes to process the country's low-grade ore into nickel products needed for high-performance lithium-ion batteries, even if there is a problem with time, Indonesia's supply growth can still be expected. This is why a metal survey recently completed by Reuters predicts that the price of nickel on the London Metal Exchange (LME) will fall from US333,000/ton to US226,800/ton in the third quarter.

03

Surplus or shortage?

The market is always a seer. The LME March futures price is currently US226,200/ton, although it is still in a restricted state after the suspension of the London contract in March. The current price has fallen back to the level before the Russian-Ukrainian conflict. The Russian Norilsk Nickel Company continues to export, still not subject to sanctions, and the risk of war has been eliminated. Most analysts believe that Indonesia's production tide will put pressure on nickel prices. However, this depends entirely on whether Indonesia's production can meet the western demand for battery nickel. The high carbon footprint of nickel production in Indonesia is very important for Western electric vehicle manufacturers such as Tesla.

The background of the LME nickel crisis is the depletion of exchange stocks because buyers are competing to buy high-purity grade I nickel, which is easily converted into nickel sulfate for batteries. With the growth of electric vehicle sales and the rise in nickel demand, not everyone believes that Indonesia's supply can make up for the gap. Goldman Sachs believes that Indonesia's production growth will cause a surplus of 112,000 tons of low-grade grade II nickel, but there may be a gap of 196,000 tons of Grade I nickel. Due to the global net shortage of 85,000 tons of nickel, the investment bank is optimistic about the nickel market and expects nickel prices to rise by 4.2 US dollars per 10,000 tons in the next year.

In the context of the 3 million-ton market, Goldman Sachs' estimate of the balance of supply and demand in the market is similar to INSG's estimate of just over 67,000 tons. The nickel market has evolved into two completely different trends, one is the traditional stainless steel market, and the other is the global decarbonization-driven market.

Surplus or shortage? Both trends in the differentiation of the nickel market may exist this year.