Nickel Supply Rush Seen Cooling Rally Before Batteries Boost

Updated on
  • ‘Market has been getting too excited, too soon’: UBS’s Shaw
  • Increased supply seen coming from Indonesia as mines ramp up

Forget electric vehicles for now. Nickel must first contend with a new wave of supply from Indonesia and the Philippines, as well as a Chinese stainless steel market that’s at risk of slowing after a two-year boom.

The metal climbed to the highest level this month since June 2015, lifted by predictions of a jump in demand from electric vehicles. But prices have since retreated as the boost from new energy autos lies several years in the future and investors reset their focus on more immediate concerns. Batteries will represent only 3 percent of demand this year, compared with the two-thirds used in stainless steel, according to the International Nickel Study Group.

“The market has been getting too excited, too soon because of the whole EV thematic -- we think that has been misplaced,” said Lachlan Shaw, an analyst at UBS Group AG in Melbourne. “It’s only really 12-18 months hence that we will have an idea of what’s really happening in the battery space, and by 2020 it could be a big part of demand growth. In the short term, nickel will remain a conventional stainless steel trade.”

That may spell trouble for a commodity that’s already this decade’s worst performer on the London Metal Exchange. Nickel has benefited recently from strong stainless steel demand in China, especially in the third quarter, and relatively restrained supply from Indonesia. But those drivers are weakening, with the highly cyclical stainless market softening, and supplies of nickel set to rise from Indonesia and the Philippines, according to Macquarie Group Ltd.

Chinese output of nickel pig iron could rebound to 500,000 metric tons in 2018 in terms of metal content, according to Macquarie, from 407,000 tons this year, after Indonesia relaxed a ban on shipping raw ore. Meanwhile, Indonesia’s own NPI production is expanding, potentially reaching 240,000 tons next year, up from 90,000 tons in 2016, the bank’s data show. Philippine mined output is also set to increase through 2021, according to BMI Research. NPI is used as an alternative to refined nickel in the stainless steel industry.

“The nickel market has definitely been a bit tighter in the past couple of months, but looking forward we’re very concerned about this vast flood of nickel ore,” Ian Roper, head of international business at Shanghai Metals Market, said by phone from Singapore. That will dwarf developments on the battery side, Roper said, making it hard to get “fundamentally bullish.”

Nickel climbed to $13,030 a metric ton in intraday trading on Nov. 1, the highest in more than two years, and traded at $12,305 by 9:50 a.m. in London on Monday.

China’s stainless steel production surged 15 percent from a year earlier in the third quarter amid a combination of restocking and real demand that pushed up prices, according CRU Group. Last week, the stainless market was rattled by reports the nation’s top supplier had slashed December prices, suggesting a softer market heading into next year. Global growth in nickel use will slow to a little over 2 percent next year from 7 percent in 2017, Macquarie data show.

To be sure, new energy vehicles are set for a pivotal role longer term as the auto market turns away from the combustion engine. By 2025, vehicle batteries will account for 500,000 to 600,000 tons of demand annually, compared with 2.1 million tons of total nickel demand at present, UBS’s Shaw said.

— With assistance by Martin Ritchie

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