One of Russia’s key products, which has been subject to sanctions, is nickel. This metal, mainly used for the production of stainless steel, is essential in other areas such as in all types of functional processes, but its role acquired particular importance due to its use in batteries and, therefore, for a sector that is emerging as a key for the West and the world, such as electric cars. Elon Musk himself spoke openly on this issue, “to all mining companies.”Please extract more nickel“, the businessman asked. “Tesla will give them a giant contract for a long period of time if they extract nickel efficiently and environmentally friendly. “I hope this message will be conveyed to all mining companies: please get your nickel.”
That is why, in 2022, when the Russian occupation of Ukraine began, this material was one of the major concerns of the EU and the United States, because at that time the Eurasian country was one of the keys to explaining the supply. However, a 180-degree turn occurred, leaving Moscow without this economic weapon. Russia accounted for only 11% of global production to only 7%.
With this weight, it had enough influence to condemn a tight market to deficit. This is why, faced with a possible reduction in supply in 2022 Prices will skyrocket by 135%. However, a tsunami of production from Asia has eased pressure on nickel, the threat of a chronic deficit has been completely eliminated and prices are collapsing in the face of the prospect of continued oversupply. The price per tonne has already fallen 24% from its April peaks, when the latest UK and US sanctions against Russia triggered panic in the market with 20% increases.
The bearish sentiment that has set in for 2024 despite the doubts comes after a very negative 2023 for the metal, which It fell 15.2% to $21,688 per tonne. For Fitch, although at the time “the decline was attributed to an oversaturated market coupled with poor demand”, it has been confirmed this year that the trend is responsible for a much larger shift. The agency comments that it expects nickel to fall to a ceiling of $18,000 in 2024 because “oversupply continues to push prices down from 2022 levels”.
The latest Macquarie report clearly indicates that there will be a clear surplus with a sharp increase in global production of 5% to 63 million tonnes. This will result in a surplus of 77,000 tonnes of supply despite strong demand. “Despite the 32% growth in electric vehicle sales, the reality is that production has been stronger, while consumption in key markets such as China has been lower than expected,” experts say. The situation is so tight due to the global shortage that one of the world’s largest markets, the London Metal Exchange (LME), has increased its reserves, to the December 2021 highs of around 110,000 tonnes, to ensure supplies to its customers.
Why is there a surplus?
But what happened to create this situation? The answer has two proper names: Indonesia and China. First, from Jakarta, they launched a totally determined effort to increase their remittances. The Southeast Asian country is the master of this market, being responsible for 51% of global productiona figure that will continue to increase in the years to come.
Already in 2023 experienced a strong expansion of 34% after recording an additional 55% growth the previous year. This pace now seems to be going in the same direction, with an increase of 24.7% in the first quarter, according to data compiled by Fitch. For its part, the consultancy firm affirms that, although recording a slowdown, the country will continue to increase its capacity with a 17% advance throughout 2024.
Macquarie comments that this slightly more lethargic pace is due to the fact that “climate related issues“which has halted some projects, while major explorations are facing “declining mineral qualities.” In addition, they believe that lower prices will also cause the pace to slow down a bit. However, even with these factors, “There is still a lot of excess capacity to be made in Indonesia.
But the other disruptive factor has been China. The Asian giant, which has bet big on electric cars, has bet big on the increase its nickel supply to ensure the security of this sector. So far, the Asian giant has not been in the picture, with production slightly up and seventh place in the world’s producer rankings. However, Chinese refiners have been increasing their capacity, with production up 40% in August. “There has been a massive expansion of their nickel refining capacity.”
All of this has caused massive falls in the nickel market, despite rapid growth in demand thanks to an electric car industry that has launched production as if there were no tomorrow in an aggressive price war, which only worsens the price of the metal. The surge in demand has failed to stem the decline. According to the International Energy Agency, nickel demand due to the automotive sector was 30% more in 2023 than in the period before 2020.
The demand shock
But cars aren’t everything. The Asian giant’s problem is demand. Well, even if the electric car requires a step of production growth, the reality is that the Chinese manufacturing industry, which was a huge source of orders for stainless steel (which requires nickel), is in a period of slowdown.Falling demand in the sector “puts additional pressure on prices,” comments Commerzbank.
Macquarie comments that concern is spreading on this front as well. Well, a weakening Chinese economy and a somewhat weaker electric vehicle market could end up having a definitive impact on this front.Our medium-term concern is the weakening of the battery market due to the decline in sales of electric vehicles in Europe and North America”. In this sense, the company concludes that, as a result, “we have significantly reduced our battery forecasts”.
Low prices destroy production
In any case, the increasingly clear dominance of these two major agents is beginning to involve great risks. “According to the German Mineral Resources Agency (Rohstoffagentur), the two countries together already represent two-thirds of the world’s refined nickel supply“, Commerzbank comments for the IEA, there is a great risk that low prices due to excess production “will increasingly force producers from other regions with higher production costs out of the market.”
This has been reflected in the closure of other major producers in other regions. One example is that Glencore has closed several mines in the region of New Caledoniaa French island in the Pacific Ocean because low nickel prices make it more profitable. In February this year, Koniambo Nickel SAS closed its doors. Last September, it announced that it was in talks with potential buyers to sell stakes in other assets.
The island of New Caledonia, despite its size, has 25% of proven reserves of the metal on the entire planet and 6% of current production. In other words, despite being an isolated island with a population of barely 270,000 inhabitants, similar to that of Gijón, it constitutes a totally key point for the market. That is why the closures that are taking place due to the maintenance of a surplus that seems to have been established for the coming years open the door to Asian domination of global supply. Something that, after a supply crisis in 2021 that put the supply of key resources for Europe and the United States under control, has proven to have major contraindications.
In any case, Europe is now content with this turn to the East. In particular, this has been one of the fronts through which the old continent has managed to reduce its exports of base metals since the 7.3 billion euros in 2021 nearly 2.1 billion in 2023. So for now, with the Russian threat deactivated when it comes to acquiring this key material and with prices falling, the world is preparing for a new era of nickel with a permanent surplus and dominated by Asia.
