Nickel prices: The top 10 most important drivers

1) Stainless steel

Stainless steel currently accounts for around 70% of nickel demand. Nickel is used as an alloying input in its production. Whenever there is growth in car sales, increasing activity in the construction sector and higher consumer spending on household appliances then it follows that nickel demand also increases.

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2) Chinese demand

Nickel is a commodity that typically sees demand increase once infrastructure is in place. As families furnish their homes with large appliances the demand for nickel typically increases. The price of nickel typically reacts in advance to signs of faster or slower growth in Chinese demand.

3) Supply

There is a two-tier market for nickel. The first is for high-purity nickel delivered by the conventional route of nickel ore processing and refining. Some of the major producing countries include Russia, Canada and Australia.

The second tier has grown up from the increasing role of nickel pig iron (NPI) production. Nickel ore is shipped from mines in the Philippines and Indonesia to China to create cheaper nickel units in NPI.

4) Innovation

As with all commodities high prices encourage innovation and the commercial use of technologies previously thought to be uneconomical. Nickel is no different.

In early 2007 Chinese stainless steel producers (the production of which requires nickel and iron ore) were up against the wall as supplies were dominated by western companies operating in places where nickel reserves were being depleted.

There were plenty of lower-grade laterite deposits in Indonesia and elsewhere which could be refined into nickel pig iron. But processing the laterite ore required lots of energy and created lots of pollution. After encouraging early trials, Tsingshan (one of China’s major stainless steel producers) tried rotary kiln electric furnaces, which use around 40% less energy than blast furnaces and can extract more nickel from the ore.

5) Batteries

While lithium may have captured the attention of battery producers looking to supply into the automotive sector, it is nickel that could help bring electric vehicles into wider adoption. the switch to NMC and NCA batteries means battery cells contain more nickel (in the region of 20%-50%). Meanwhile as battery packs become bigger to increase the range of vehicles between charging then there is likely to be greater use of nickel. Batteries currently represent around 4%-5% of global nickel demand.

As of now, the EV-battery market wants tier 1 (class 1) material, sourced from mined nickel sulfide ores. The high-quality nickel metal produced from those is used to make the nickel sulfate needed for batteries. The problem is that none of the NPI produced by Indonesia and the Philippines is suited for production of the nickel sulphate powder desired by battery makers.

6) The weather

Perhaps surprisingly the commodity that has typically seen the biggest price impact from the weather phenomenon known as El Niño during the 20 year period to 2015 has been nickel. This has been because dry weather in Indonesia lowered water levels in canals, preventing the metal from being exported.

7) Political uncertainty

Political uncertainty is one of the main factors affecting the nickel market. After Indonesia introduced an export ban on nickel ore in early 2014 nickel prices promptly surged by over 50% reaching a high of just over £21,000 per tonne five months later. Prices were also buoyed by geopolitical concerns elsewhere, namely the risk of sanctions on the worlds biggest nickel producer, the Russian company Norilsk Nickel. Meanwhile, geopolitical concerns resurfaced in the nickel market after the Us imposed sanctions on Russian oligarchs.

8) Stock levels

In theory rising nickel stock levels should be indicative of a weak market, as supply exceeds demand. It is normal for prices and inventory levels to generally move in opposite directions. When nickel producers don’t like the market price and think that they can get a better one by waiting, they put their production into warehouse storage and wait for better times. When prices rise up to or above a price level that the producers like, nickel starts coming back out of inventory and onto the market. So watching nickel inventory levels can give us insights about where the producers think a fair price is. Both the LME and the Shanghai metals exchange report nickel stocks.

9) US Dollar

Like most internationally traded commodities nickel is priced in US dollars. At its most basic a decrease in the value of the US dollar relative to a commodity buyer’s currency means that the purchaser will need to spend less of their own currency to buy a given amount of the commodity. As the commodity becomes less expensive demand for the commodity rises, resulting in an increase in the price and vice versa.

A weaker dollar can also act as a disincentive to producers to increase output. For example, a depreciation of the US dollar against the Indonesian Rupiah can reduce profit margins for a nickel miner in Indonesia. All of the miner’s revenues will be received in US dollars, which will now buy less Rupiahs, but some proportion of the costs will be denominated in Rupiahs and will remain constant (at least in the short term). Therefore, the prospect of a lower profit margin acts as an incentive to decrease the supply of nickel.

10) Scrap availability

Stainless steel scrap is another important source of supply for the stainless steel industry. In the future the recycling of batteries from electric vehicles is likely to become an important source of supply for the nickel sulfide used in those battery packs.

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