The nickel futures market has returned to the volatility seen earlier this year when the London Metal Exchange had to intervene because of rapid price spikes.
Now the market is coming crushing down with prices dropping to as low as $33,000 a metric tonne, down from a $100,000/t peak in March during the height of the squeeze on Tsingshan Holding Group, a major steel and nickel producer. At the time the group was caught out with a wrong bet on the short side of the market but since then most of the speculative play seems to have come to an end. However, although prices are now much lower than at their peak in March the underlying supply and demand picture continues to work in nickel’s favour.
Sanctions against Russia continue to play a major part in global nickel prices as the country’s mining giant Norilsk Nickel is one of the world’s largest producers of the metal. Germany , for instance, and its booming construction and car industries, hugely depend on imports from Russia as 40% of this metal, which is used in stainless steel production and for electric vehicles lithium ion batteries, comes from Norilsk Nickel. Although there is a host of other countries that produce nickel, Russia is the market leader, supplying around 20% of the world’s purest form of the metal, known as class 1 nickel.
According to commodities trading house Glencore the demand for nickel is set to multiply between now and 2050, the year of the global net-zero targets, because of the expected demand boom from the EV sector. An average electric car today needs 36 kilogrammes of nickel in its production but this will change to of 52kg over the next few decades.
To put it into perspective against other metals, while global copper demand is expected to increase by 2% by 2050 from its 2019 levels and zinc by 2.1%, the demand for nickel will rise much faster by 3.7%. In terms of tonnes of metal extracted from the ground, this will require another 225,000 tonnes per year, on average, which is more than Norilsk Nickel produced in the whole of 2020 (178,200 tonnes).
Is this a large heading? Yes.
In the past electric car makers have bemoaned the insufficient supply of the metal “Nickel is the biggest challenge for high-volume, long-range batteries!”, Tesla CEO Elon Musk tweeted in 2020. “Australia & Canada are doing pretty well. US nickel production is objectively very lame. Indonesia is great!”
Since the start of the war in Ukraine Russia has used its position as a major gas producer to blackmail European countries, it cut off Poland and Bulgaria from its energy supplies and negotiated separate deals with Germany, Austria and Hungary, forcing them to pay in roubles rather than dollars to circumvent international sanctions. Although the country has not done the same with nickel, all major buyers of Russian metal are understandably nervous that this might happen to them too and are looking for alternative sources.
For instance Volkswagen recently turned to China’s Tsingshan for nickel supplies but didn’t disclose any details on the negotiated price for the metal. But while they may avoid being held to ransom by Russian suppliers, they will be unable to escape a price increase from alternative sources because fundamentally the global output of nickel has not had a chance to increase in the last two months – since the start of the war in Ukraine.
Nickel has rallied almost 60% in the first quarter of 2022, its biggest quarterly gain since 2003. For the moment the thin volumes in the nickel market are causing a trading pattern that is more erratic than usual but once the volume returns higher prices for the metal will be fully justified.