Nickel Price Surging As Hype Escalates During LME Week

It’s LME Week and there’s cause for celebration in metal markets. European mining stocks rose to a 4-year high as the nickel price surged more than 5% intraday to a two-year high and rose by the daily limit in Shanghai trading today. Metals used in electronic vehicles, like lithium, cobalt, copper and nickel, are hot right now and a focal point of discussion at the LME gatherings. As Metal Bulletin noted, the 2017 event has seen record attendance.

The annual LME Dinner week kicked off in a positive note, with record numbers gathering for the exchange’s keynote metals seminar on Monday October 30. “We have over 900 people over the day here…which is a record attendance,” London Metal Exchange chief executive officer (CEO) Matthew Chamberlain said.

Despite relatively high inventories, big miners and metal traders are becoming increasingly bullish on nickel’s prospects. According to Bloomberg…

Glencore Plc and Trafigura Group Pte are often at loggerheads, but one thing they agree on: the nickel market will be transformed by the rise of electric cars. Nickel sulphate, a key ingredient in lithium-ion batteries, will see demand increase 50 percent to 3 million metric tons by 2030, Saad Rahim, chief economist at Trafigura, said in an interview. While other battery metals like cobalt and lithium have more than doubled since the start of last year, nickel prices have been subdued because of large inventories.

“When you look structurally, we should start to get bullish now,” Rahim said.

“Are you going to be able to meet that demand when the time comes, given underinvestment in the supply side?”

Glencore, which was devastated by the downturn in nickel, is also optimistic, as are some of the analysts, as Bloomberg notes…

(Glencore) told analysts recently that nickel production would need to increase 1.2 million tons by 2030, equal to more than half of current global output, to keep up with demand from the battery industry. Prices are currently more than double what it costs Glencore to mine the metal. It’s a surprising mood change for a market with a disastrous reputation. Nickel was long a thorn for Glencore, which was saddled with unprofitable operations following its takeover of Xstrata. It sold an Australian nickel mine, which Xstrata bought in 2007 for $2.4 billion, for just $19 million in 2015.

“The nickel industry’s been a bit of a dog since about 2007,” Oliver Ramsbottom, a partner at McKinsey & Co. in Tokyo, said by phone.

The battery industry could revive the fortunes of miners more than a decade after nickel collapsed from a peak of $51,600 a ton in 2007

Despite the hype, Bloomberg cautions that there are still naysayers highlighting elevated inventories and the potential for supply to ramp-up faster than currently expected.

Still, some analysts are skeptical that the bullish scenarios will play out. Electric cars are still a niche industry and nickel oversupply remains a threat, with current stockpiles four times bigger than since the start of 2012.

Indonesia has authorized its largest producer to export more nickel ore. The Philippines has also discussed ending a ban on open-pit mining, raising concerns that supply will spike.

“For years, the market has completely dismissed the idea that something positive could happen in nickel,” Ingrid Sternby, senior research analyst at Blenheim Capital Management LLP, said in an interview in London. “With the recent announcements about Indonesia and the Philippines, it’s easy to see why the market is still scary enough for people not to want to be involved…

“You can see the tightness ahead in the nickel market, but my concern is that we’re going to see a lot of value destroyed along the way,” said Colin Hamilton, managing director for commodities research at BMO Capital Markets Ltd.

“If the miners really believe in the EV growth story, the thing to do would be to keep the nickel in the ground until the deficit arrives.”

When assessing the prospects for nickel, it is really two separate markets, nickel alloyed with iron and nickel sulphate used in batteries. Bloomberg expects the latter to progressively trade at a premium to the former.

About half of global nickel production is in the form of ferronickel or nickel pig iron, which is nickel alloyed with iron, making it suitable for stainless steel. Battery makers, instead, use nickel sulphate, produced by dissolving pure nickel metal in sulphuric acid. One hope is that the pricing of nickel pig iron and the high-grade nickel sulphate will diverge in the coming years, improving the fortunes of miners that can produce battery-quality material.

The global nickel market is heading for a deficit once above-ground stockpiles of battery-grade metal are consumed, according to Wood Mackenzie. The question for miners is how quickly the premium for top-quality nickel will emerge.

The nickel alloy versus nickel sulphate certainly adds complexity to analysing nickel. However, while the fundamentals for the latter seem very positive, it makes us slightly nervous when record numbers of participants gather at industry jamborees.

Still, politicians and automakers are increasingly counting on a future of electric cars, attracting traders such as Trafigura.

“Will we see a real breakout in next 12 months? That’s hard to see, but beyond that, structurally this looks to be going up,” Rahim said.