Momentum behind the rally that has taken nickel prices to historical highs is expected to recede as supplies of the metal used to make electric vehicle batteries and stainless steel start to ramp up.
Nickel prices touched $22,935 a tonne on Friday, the highest since 2011, while on the Shanghai Futures Exchange (ShFE) prices are at their highest since contract launch in 2015.
Stainless steel accounts for about two-thirds of global nickel consumption estimated at around three million tonnes this year. Electric vehicle batteries are expected to double their share to around 20% by 2025.
Shortages of nickel cathode such as that produced by Russia’s Norilsk Nickel that can be delivered against the Shanghai contract, is one reason behind the price rally.
Nornickel’s output fell after flooding at two of its Arctic mines stopped production for several months in 2021.
However, it expects to produce 205,000 to 215,000 tonnes of nickel this year compared with 190,000 to 200,000 tonnes last year.
“A short-term shortage of ShFE deliverable units and a positioning surge is likely to fade heading into the Chinese New Year,” said Citi analyst Oliver Nugent.
“Open interest on ShFE is up 25% to 370,000 tonnes this year…This is happening against a backdrop of tight stocks.”
Stocks of nickel in warehouses monitored by ShFE have yet to recover significantly from record lows of 4,455 tonnes hit in August 2021.
Nickel inventories in LME approved warehouses at 97,746 tonnes have fallen around 65% since April 2021.
About 54% of the total is bagged briquette, easily crushed into small particles and dissolved in sulphuric acid to make nickel sulfate used for batteries.
Concerns about shortages on the LME market have created a hefty premium for the cash over the three-month contract, which at $241 a tonne is the highest since April 2009.
“Risks to nickel’s near-term price are to the downside,” said Macquarie analyst Jim Lennon.
“But potential for large falls seems less likely given strong buying by electric vehicle battery makers into price weakness and potential for supply growth to disappoint.”
New supplies of nickel that can be used to make the chemicals for batteries will come from projects to convert nickel pig iron into matte and high pressure acid leach projects in top producer Indonesia.
Macquarie’s Lennon expects these projects to add 100,000 tonnes to nickel supplies this year.
(By Pratima Desai and Anastasia Lyrchikova; Editing by Kirsten Donovan)