Nickel the Best Performing Base Metal in 2024 YTD, But for How Long with Indonesian Producers’ Facing a Dilemma?

Nickel the Best Performing Base Metal in 2024 YTD, But for How Long With Indonesian Producers’ Facing a Dilemma?
Natalie Scott-Gray
Senior Metals Analyst
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On 28th February, a deputy at the Coordinating Ministry for Maritime Affairs and Investment in Indonesia stated that nickel prices are likely to be held between two key levels, $18,000/t at the high-end, and ~$15,000/t at the low-end. He went on to explain that when nickel prices fall below $15,000/t, Indonesian smelters are forced to cut production, while nickel tracking above $18,000/t negatively impacts demand from its fastest growing end-use market, electric vehicles. Given that Indonesia is the largest producer of mined nickel in the world, it has the potential to influence global supply, and therefore, impact nickel price performance.  

Nickel Price Chart & Major Events

Source: Bloomberg

Why Indonesia Doesn’t Chase Higher Nickel Prices?

In 2022, the average volume-weighed battery pack cost of a lithium-ion battery rose for the first time in a decade on the back of rising materials costs, with 50% of a battery pack price stemming from the cathode itself. Please note, the cathode is the section of the lithium-ion battery which contains critical minerals such as nickel, cobalt and lithium. In 2021, these three metals jumped by 280%, 119% and 25% respectively. 

As a result of this and in pursuit of reducing costs for electric vehicle manufacturers, much investment has taken place to alter lithium-ion cathode chemistries, with a key outcome, the reduction (or complete removal) of the more expensive metals such as cobalt and nickel. Indeed, as it stands, lithium-ion-phosphate batteries (LFP) (which contain no nickel or cobalt) have increased in popularity, reporting similar performances to traditional nickel and cobalt containing lithium-ion batteries (NMCs). In fact, within China, 68% of all lithium-ion batteries for BEV no-longer contain cobalt or nickel (please note, this is up from just 39% in 2020).  

Therefore, given that EVs are the largest growing demand sector for nickel in the decades ahead, Indonesia does not want to see increased market developments away from nickel containing batteries, i.e. significant price rises from an undersupplied market.  

Septain Hario Seto, a Deputy at the Coordinating Ministry for Maritime Affairs and Investment in Indonesia was quoted on 28th February stating:

We know what happened with cobalt three, four years ago”, “you have to make sure everyone in the ecosystem has a good profitability, not an excessive one”, “the purpose for the Government is to find an equilibrium so that nickel demand, especially for EVs is well supplied”.   

Lithium, Nickel and Cobalt Annual Price Performance (% change)

Source: Bloomberg

Volume-Weighted Average Lithium-Ion Battery Pack and Cell Price Split

Source: Bloomberg BNEF, SMM, StoneX

Lithium-ion BEV Cathode Chemistries

Source: Bloomberg BNEF, SMM, StoneX

Nickel End-Use Market Share in to be Transformed  

Source: Bloomberg

Nickel the Best Performing Base Metal YTD

Nickel on a YTD basis is up 6.4%, placing it as the best performing base metal in 2024, in a stark difference to last year in which nickel prices fell 44% on oversupply, weak demand and price rebalancing following the LME short squeeze in March 2022. The key drivers behind this price rally have arisen not only from Indonesia facing nickel ore mining permit (RKABs*) delays, but seasonal factors with the second largest nickel ore producer the Philippines facing its rainy season, in addition to low nickel prices forcing at-risk nickel miners** to suspend operations or close altogether.  

*Indonesia Delayed Permits: Following corruption allegations last year, Indonesia has altered the way in which it issues its mineral mining permits, centralising the process. As a result, smelters are facing delays in obtaining their production and sales quota (RKABs) and are being forced to halt operations until a permit is granted. SMM has reported that by 26th February 145M wmt of nickel ore for 2024 was approved, accounting for ~60% of demand. 

**Volatile price swings in the nickel market over the last several years have made it challenging for nickel miners ex-Indonesia to remain profitable. As a result of falling prices over much of 2023, we have seen several miners close their operations in recent months, including two in Australia belonging to First Quantum and BHP removing ~2% of global nickel resource reserves from the market.  

Base Metal Price Performance YTD

Source: Bloomberg

Base Metal Price Performance 1Y

Source: Bloomberg

Has Demand Been Underestimated?

Meanwhile, if we look at the demand side of the equation, over the past three months global demand estimates for 2024 have been scaled up by 155,000t (based on SMM data), led by growth forecasts for nickel in stainless steel manufacturing within China and Indonesia rising by 7% or 130,000t. Please note, stainless steel manufacturers require low-grade nickel in the form of nickel-pig-ion (NPI) or ferronickel. Given that we have market tightness stemming from nickel ore mining within Indonesia (which is made up largely of lower-grade laterite ore deposits that are smelted into NPI and ferronickel), it is not surprising that we have seen NPI prices tick higher in recent weeks. 

Three Month Change in Global Demand Outlook

Source: Bloomberg,  SMM, StoneX

Three Month Change in Demand Outlook by Sector 

Source: Bloomberg,  SMM, StoneX

NPI Nickel Prices Has Ticked Higher at the Start of 2024

Source: Bloomberg

Our View 

We forecast that growth in demand will outpace that of growth in supply over the H1, tightening the global market balance over the period, with SMM forecasting a global market balance surplus of just 40,000t in Q2, down from 93,000t in Q1.

But What Does This Mean for Nickel Prices?

There is no doubt that nickel prices will benefit from a tightening in the global underlying fundamentals in the H1, but with Indonesia vowing to accelerate the pace of permit approvals (with a target deadline end-March), we forecast that tightness will start to unwind in the next month. 

Furthermore, it is also important to remember that the benchmark nickel price reflects high-grade refined nickel fundamentals (and the wider macro-economic environment). Therefore, in order to see nickel prices rise towards the $20,000/t level, we would need to see ongoing tightness in the market within the NPI intermediate product meaningfully impact the refined market. By this, we mean refiners opting to use refined nickel in replacement of NPI, either due to a lower cost point and/or by lack of available supply for demand. However, given that nickel ore prices remain largely unimpacted by these permit delays, it implies there is enough stockpiled material for the moment (with smelters having anticipated a slow approval process to come). In addition, given that global nickel stocks have been on the build, with SHFE deliverable stocks far exceeding five-year average increases in the first two-months of 2024, we forecast that nickel prices may have hit their peak for H1. 

Quarterly Supply Versus Demand Growth in 2024 (%)

Source: Bloomberg,  SMM, StoneX

Quarterly Global Market Balance (000t)

Source: Bloomberg,  SMM, StoneX

Global Visible Nickel Stocks 

Source: Bloomberg

SHFE Deliverable Nickel Stocks Versus Domestic Production

Source: Bloomberg

SHFE Nickel Deliverable Stocks – Seasonality Chart 

Source: Bloomberg
Related tags: Base Metals

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