Nickel price surges as stockpiles deplete and Indonesia threatens export ban

Nickel price surges stockpiles deplete LME Indonesia export ban
LME nickel stockpiles fell below 150,000t, sparking a price rise of 7.7% this week.

Nickel’s time to shine may have reappeared with the metal reaching US$14,220 per tonne (US$6.31/pound) this week, as stockpiles continue to diminish, and the electric vehicle and lithium-ion battery revolution picks up pace.

A nickel price resurgence has been forecast for the last few years, with many analysts and nickel miners believing it had finally arrived in 2018, before US President Donald Trump picked a trade war with China, which escalated considerably as the year advanced.

With the US-China trade war causing uncertainty in several commodity markets including nickel, the metal’s price started falling in mid-2018, finally bottoming at US$10,435/t at the start of this year.

Since then, it has slowly begun creeping back, but in late June the rise picked up pace, with the metal reaching US$14,220/t on Wednesday.

Underpinning the rising price are diminishing stockpiles on the London Metal Exchange with stocks sitting at 148,374t on Thursday – down from more than 350,000t less than two years ago.

Jervois Mining (ASX: JRV) executive general manager Michael Rodriguez told Small Caps the stockpile figure represents less than two months’-worth of supply.

He pointed out that LME stockpiles falling below 150,000t this week had also sent a signal to the market, which is in a supply deficit and facing potential shortages.

“The large drop in inventory over such a short period of time is material and speculative buyers have been buying backing higher future prices. Bottom line, nickel has gone bullish after doing very little over the last 12 months,” Mr Rodriguez said.

He added it was time to watch nickel stocks carefully.

“Having said that, low interest rates, changing consumer sentiment and the ongoing trade war between China and the US looks like it’s going to drag well into next year,” he noted.

Near-term price outlook

Looking ahead in the near-term, analysts are varied in their outlook for the nickel price.

At the start of the year, the ongoing trade war saw Goldman Sachs Group curbing its near-term forecasts for base metals, predicting nickel would be hovering at US$11,500/t by mid-2019 and close out the year at US$12,500/t.

Nickel price chart July 2019
The price of nickel has risen 34% this year.

The current nickel run has already outpaced the analyst’s mid-2019 expectations and it remains to be seen whether the price will continue rising or falter again.

Meanwhile, commodity analysts such as Deutsche Bank and JP Morgan have pointed out the current deficits will continue and, as a result, the nickel price will have no choice but to head upwards.

Panoramic Resources (ASX: PAN) managing director Peter Harold’s view of the price was similar.

Mr Harold told Small Caps that even if the trade war continues, the current supply deficit would still push the nickel price higher.

Market dynamics

The nickel market slipped into a supply deficit in 2016 and this is predicted to continue through to at least 2025 due to strengthening demand in stainless steel and lithium-ion battery markets, with both markets likely to be competing for supply in the coming years.

WA-based nickel miner Western Areas (ASX: WSA) noted at a recent conference it had seen a “significant increase” in offtake enquiries for its nickel sulphide concentrate.

However, the miner also said the nickel price this year had remained too low to incentivise new project development.

The miner added with current nickel operations depleting, the market is still heading towards its much talked about inevitable supply crunch.

Nickel consumption in stainless steel is growing about 5% per year, while use in batteries is surging between 30-40% a year.

It’s estimated that an addition 1Mt of nickel will be needed to meet projected demand over the next decade.

Adding to the tight market was major nickel exporting nation Indonesia’s threat to reinstate an export ban on its ore from 2022, with the export ban only lifted in 2017.

The ban was initially introduced in January 2014 with the aim of forcing miners to build domestic processing capacity.

Also noting the tight supply situation, BHP chief executive officer Andrew Mackenzie told delegates at the Bank of America Merrill Lynch Global Metals, Mining and Steel Conference that the company’s Nickel West operations offered “high-return” potential due to the expected growth in battery markets and scarce nickel sulphide supplies.

Meanwhile, Swiss-based Glencore’s head of global nickel assets Marc Boissonneault said at the same conference that about 140 million electric vehicles are expected to be on global roads by 2030.

To feed this, more than 1.3Mtpa of nickel is needed just for EVs during this period.

Putting this demand into perspective, EVs soaked up only 3% of the commodity in 2018. EV nickel consumption is predicted to rise to 5% of all nickel production by 2020, increasing to 18% by 2025 and 59% by 2030.

Even if Indonesia decides not to ban nickel exports, Glencore anticipates the deficit will continue through to at least 2030.

Commenting on the market’s fundamentals, Mr Harold said the combination of low nickel stockpiles, solid stainless steel production, and growing electric vehicle demand generated a “fantastic outlook” for nickel.

Nickel stock tracker

Lorna has more than 10 years' experience as a finance journalist and editor. She has written for numerous industry publications reporting on various sectors, including: resources, energy, construction, biotech, pharma, science and technology, agriculture, and chemicals. Specialising in resources, Lorna has also covered a myriad of small and large cap ASX and dual-listed stocks.