The continuing lockdown in some parts of the world, coupled with supply-side restraints, besides the uncertainties related to the US election have impacted the base metals complex this year, and nickel is no exception.
Indonesia, the largest miner and exporter of nickel, had banned exports of the metal in January, hoping for a price rise in the wake of limited supplies to the China’s booming stainless steel sector. While the ban did result in a short-term jump in prices, it has been fluctuating in the global markets ever since. But even under these conditions, the grayish metal has delivered an 11 per cent return this year so far (till October) and market watchers place their bets on the booming EV market to put back the spark to this metal.
Demand vs supply
The global nickel market is expected to grow at a high CAGR during 2020-27 by analysts. Currently, stainless steel alloys are the main source of nickel consumption; about two-thirds of nickel sold each year goes into stainless steel. Increasing demand for nickel in automobile batteries, energy storage systems in wind turbines or solar panels at a lower cost are the major driving factors for the market growth.
The primary reason for volatility in nickel prices this year is drop in global demand. Poor performance of the Chinese real estate and construction industry, along with the falling demand from the oil and natural gas industry, are the reasons.
Major mining companies — Nickel Asia and Global Ferronickel Holdings — suspended some of their operations in response to Covid-19. Brazil’s Vale has cut its 2020 guidance by up to 20,000 tonnes, citing ‘limited ability to keep current maintenance shutdown schedules’. Glencore’s Raglan mine restarted in April but two of its employees tested positive for Covid-19 recently, while Sumitomo Corp’s Madagascar plant and Australian producer Panoramic Resources remain out of action.
However, experts tracking the sector believe that the user industries are likely to recover once the lockdowns are lifted. And, the demand for automobiles and EVs are likely to grow, thanks to the hygiene consciousness ushered in by the pandemic.
Following the suspension in nickel mining and a slack demand, the overall forecast for nickel in 2020 is projected to be in the surplus of around 48,000 tonnes up from 11,000 tonnes. This is likely to be the first surplus year in nickel stocks since 2015, according to IIFL Securities.
Kunal Shah, Head of Commodities Research at Nirmal Bang Securities, told BusinessLine that the demand for EV batteries is about 4 per cent of the total nickel consumption. “I see this growing to 8-10 per cent in the next 2-3 years. EVs will boost the demand for lithium-ion batteries and enhance the production of nickel-cobalt-aluminum batteries. With the ongoing pandemic-led curbs, nickel mining projects in Indonesia have been severely delayed. Also, China is staring at a dwindling stock of nickel ore which may force its producers to switch to Class 1 nickel (used for producing high-quality nickel sulphate in EV batteries). Although peppered with challenges, the fundamentals of the metal looks bright and the steady uptrend is likely to continue. I see supports at ₹1,200 and in three months prices may touch ₹1,280-1,290 range”.
Kedia Commodities advisory sees global nickel surplus to narrow in 2021 as demand rebounds.
India is the second largest producer of stainless steel in the world. The Ghatasila copper smelter of the Hindustan Copper Limited in Jharkhand is the first and only unit in India to produce nickel of LME grade. Asia Pacific is expected to dominate the global nickel market in the future due to high consumption rate of nickel and presence of large stainless steel manufacturing companies and battery manufacturers in this region. Furthermore, burgeoning demand in China and India is expected to boost the prospects of the metal.