(Source- auto.economictimes.indiatimes)
In recent weeks, the global nickel market has experienced a significant price decline, influenced by a complex interplay of economic factors and strategic decisions. According to S&P Global Commodity Insights, the London Metal Exchange (LME) three-month closing nickel price dropped from $19,830 per metric ton at the end of May to $17,891 per ton by June 10. This marks the first time since mid-April that nickel prices have fallen below the $18,000 per ton threshold.
This downturn can be attributed largely to actions taken by investment funds, which liquidated their long positions amidst a strengthening US dollar and disappointing manufacturing data from China. These factors combined to exert downward pressure on the nickel market, overturning gains made in May when prices had surged to a nine-month high of $21,615 per ton. During that period, concerns over potential supply disruptions and increased investor optimism in the base metals sector had fueled a bullish trend. However, as economic indicators shifted, investors reevaluated their positions, leading to a swift reversal in nickel prices.
Despite bullish headlines, such as the European Central Bank’s interest rate cut, ongoing production standstill in New Caledonia, and potential permit terminations for ferronickel and nickel pig iron plants in Indonesia, the sharp price decline reflected a contraction in investment funds’ net long positions on the LME, indicating substantial liquidation of long positions.
Nickel Supply Chains and Strategic Maneuvers
In addition to market dynamics, strategic maneuvers by key global players have also influenced nickel’s price trajectory. The United States has expressed a strategic interest in forging a partnership with the Philippines, the world’s second-largest nickel producer, to secure nickel supplies essential for its growing battery sector. This move comes as the US grapples with its limited domestic nickel reserves compared to major producers like Indonesia.
The Philippines exported 39.9 million metric tons of nickel ore to China, highlighting its significance in the global supply chain. The US anticipates a substantial increase in nickel demand for electric vehicle (EV) batteries, with an expected growth of 211,000 metric tons between 2023 and 2028. This surge underscores the need for a reliable nickel supply chain.
Additionally, Indonesia’s significant processing capacity falls under the US government’s “foreign entities of concern” (FEOC) guidance, making Indonesian nickel potentially ineligible for certain US EV tax credits. This has led the US to enter trilateral talks with the Philippines and Japan. Discussions are underway to enhance infrastructure and production capabilities in the Philippines, signaling a potential shift in global nickel trade dynamics as the US seeks to fortify its supply chains for EV production.
Short-Term Slump and Long-Term Prospects
Looking ahead, analysts at S&P Global Commodity Insights predict that the global primary nickel market will continue to face challenges driven by oversupply conditions throughout the remainder of the year. Despite bullish sentiments, the underlying imbalance between supply and demand is expected to restrain nickel prices.
In the short term, the sharp price drop observed in June aligns with S&P Global’s earlier expectations of a potential correction. Despite a strong buying surge in May, investor confidence in nickel remains vulnerable due to the fundamental oversupply in the market. Analysts anticipate that weak global primary nickel market fundamentals will continue to exert downward pressure on prices. Specifically, they forecast that total primary nickel stocks, measured in terms of weeks of consumption, will reach a four-year high in 2024. This anticipated increase in stocks will likely limit any significant price recovery for the remainder of the year.
However, the long-term outlook for nickel remains positive, primarily due to its critical role in the energy transition. Increasing demand from the electric vehicle sector, renewable energy technologies, and energy storage solutions will drive long-term demand growth for nickel. While prices may remain subdued in the short term due to oversupply, the medium to long-term outlook suggests potential price recovery as demand catches up with supply. Key factors to monitor include technological advancements in battery chemistry, policy support for clean energy, and macroeconomic conditions.
In conclusion, the recent decline in nickel prices reflects market recalibrations and strategic decisions by key global players. Stakeholders should prepare for continued market volatility with limited immediate price recovery but can remain optimistic about the long-term prospects for nickel driven by the energy transition.
