The price of nickel has surged to its highest over the past six months. While it highlights worsening trading conditions, the price of nickel is seeing volatile movements due to low liquidity. The disarray broke out in March, largely thanks to the London Metal Exchange suspending and cancelling billions of dollars’ worth of trades due to the unprecedented price rise. Recent sharp price swings revived concerns about the liquidity crisis as it is one of the most crucial industrial commodities.
The question of supply
Nickel is an extremely important material, primarily used in batteries (for electric cars) and stainless steel. The sanctions against Russia during the first quarter of 2022 increased nickel supply fears amongst traders and companies, as the country is the third largest producer of nickel. Russia contributes to 10% of the global output, which is one of the many reasons why prices increased so drastically.
As demand has increased significantly due to the stainless steel and electric vehicle applications, shortages were already expected, even without the sanctions. By late March 2022, inventories of the London Metal Exchange fell by 70% compared to the same time last year. During the same time period, cancelled warrants also rose from 23% to over 50%. As stated earlier, nickel is an essential material in many industries; which means the chaos of the nickel market will directly impact said industries negatively, especially the stainless steel and electric vehicles market. This, coupled with the rising energy prices significantly increases the expenditures of the stainless steel and electric vehicle industries.
Nickel market suffers from low liquidity after market chaos I BLOOMBERG (2022)
Price highs and lows
It has seen a very turbulent year, as China started reopening its economy and the property sector sees prices increased by 25% over five days during the first quarter of 2022. This was seen as an anomaly as according to experts this positive news wasn’t enough to justify the increase. The London Metal Exchange’s contract for nickel has been at 30% of levels in the six months before the chaos. A weakening dollar also aided in the surge of the nickel price as well as low liquidity on the contracts. Nickel prices rose to an all-time high in March – jumping from 28,000 USD per ton to 48,000 USD – in under a week. This was followed by trades being cancelled by the London Metal Exchange. These record-high prices could have led to demand destruction across the global industry, attributed by geopolitical situations. Chinese output has been dwindling as operations were halted due to the lockdowns and combined with supply chain bottlenecks, caused a scarcity of supply. This supply crunch ate up global inventories increasing the prices in the first two months. Then, the embargoes on Russia ensued, further decreasing supply and causing a further hike on nickel prices. Russia is one of the largest nickel producers globally whom supplies high-grade nickel. Nickel prices has finally cooled down due to the US Federal Reserve stepping in to aid the economy. However, the prices may yet be affected as China is facing fresh COVID-19 outbreaks leading to several cities being locked down; hindering the production and distribution of nickel.
Nickel prices surge to highest level in six months I REFINITIV (2022)
Forecasts for the industry
There are divisive forecasts in the industry. Some experts forecast that December of 2023, the price of nickel is to rise as high as 28,700 USD-a-ton. By the end of the year 2025, they expect the metal to hit 40,000 USD per ton; continuing to steadily rise until the third quarter of 2027 when it would hit 51,000 USD.
According to other experts, the price will drop throughout the following years. They expect nickel to drop to 20,000 USD per ton in 2023 and expect a continuous decline, going as low as 17,000 USD over the year 2024, and finishing somewhere around 15,000 USD by 2025. They expect it to not recover from this price drop and levitate around the 15,000 USD mark beyond the year 2025.
These analytics are based on the correspondence between consumption and supply – from stainless steel and electric vehicles – over 2023-2024 as inventories are below historical levels. The expanding Indonesian supply may keep the market oversupplied for quite a while, albeit the fast-growing demand. With or without the Russian sanctions, they will remain a part of the economy, as some Western firms have already adapted to supplying themselves without Russian nickel while remaining hesitant to over-rely on the Russian market again.
Sanctions on Russian commodities have been limited; however, supplies have already been disrupted. Shipping companies are not able to use Russian ports leading to metal companies sourcing for other alternatives. Nickel prices will continue to be affected by the global situation; however, we can only speculate on the direction. With such uncertainties in the market, trade financing is really important for small and medium corporations to help them navigate the market and make safer investments.
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