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Via Metal Miner

 

Will there be a rebound in Chinese nickel purchases in 2024? Furthermore, will it serve to bolster the market in the near term? Following a lengthy period of de-stocking last year, these are just some of the questions with implications for the global nickel price.

As the world moves toward cleaner energy sources, certain minerals and metals are now deemed "critical" to the transition. As a key ingredient in electric vehicle (EV) batteries, nickel is one of several elements under the spotlight.

On average, most studies project a 60% surge in the demand for battery metals over the next twenty years. Meanwhile, anticipated data forecasts that the global primary nickel market will sustain a surplus from 2023 to 2027, culminating in a projected surplus of 27,000 metric tons by the end of 2027. Analysts say much of this shift stems from China's expanding refining capacity.

According to experts, the significant increase in supply projected for 2024, driven by heightened production in Indonesia and China, will primarily result in price reductions. As China's domestic refining capacity grows, the nickel market continues to brace for a new equilibrium: balancing supply with evolving demand.

Last year, the conversion of Class-2 material into Class-1, particularly nickel sulfate into nickel cathode, led to a glut in the Chinese market. Major players like Tsingshan Group and Huayou Cobalt stepped on the gas pedal and increased production, leading to a global market shift and a fall in nickel prices on both the London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE).

Indonesia's Growing Control Over the Global Nickel Price

In Indonesia, the world's largest nickel producer, this surge continues to spark political, environmental, and ethical dilemmas. The implications of this oversupply are far-reaching, potentially affecting prices, market dynamics, and future approaches to production. In a strategic move, Indonesia imposed a permanent ban on nickel ore exports about four years ago.

At the time, the goal was to draw foreign investments to bolster domestic processing capabilities and foster downstream industries. The ban successfully attracted foreign investors, predominantly from China, who constructed smelters and significantly boosted exports. This eventually led to a staggering 250% increase in Indonesia's nickel production since 2021.

The Indonesian supply surge resulted in several production cuts or shutdowns worldwide. Meanwhile, one report in The Hindu BusinessLine states that the influx of material also sent nickel prices plummeting to near three-year lows. Of late, quotes for the three-month nickel contract stood at U.S. $17,670 a ton, a drastic drop from the U.S. $30,000 a ton seen in January 2023.

The silver lining is that the prices are about 8% higher they were at the beginning of 2024. In 2023, nickel prices fell about 47%, making it the second worse year after 2008. Of course, the reason for the steep drop was the supply surge from Indonesia.

Potential Production Cuts May Reverse Falling Prices

According to a recent Reuters report, both China and Indonesia may decrease nickel production by a minimum of 100,000 metric tons in 2024. The decision stems from producers' efforts to mitigate losses amid a decline in nickel prices, which are vital for stainless steel manufacturing and EVs. They suggest that additional cuts may be necessary for producers to elevate prices and alleviate the market surplus, rather than merely halting losses.

However, other experts claim the situation on the ground may change quickly once the stockpiles maintained by Indonesian smelters deplete. For instance, a Bloomberg report quoting analysts at Macquarie Group Ltd said the depletion and the prospect of a resurgence in Chinese purchasing after a prolonged period of de-stocking last year could drive nickel into a supply deficit by the end of 2024.

As per information provided by GlobalData and based on referencing data from the U.S. Geological Survey, global nickel reserves currently sit at about 102 MT. The main reservoirs are in Indonesia and Australia, which total about 41% of the global supply. Following these nations are Brazil (15.7%), Russia (7.3%), and New Caledonia (7%).

What Should the U.S. Do?

An article from The United States Institute Of Peace says that the U.S. should tie up with the private sector in Indonesia to build processing plants following the latter country's ban on raw nickel exports. This investment will ensure more control over labor and human rights standards and stronger ties to the U.S. in the face of Chinese investment.

The writers also suggest that the United States should consider the Philippines as a key strategic ally for the Minerals Security Partnership, particularly regarding investments in clean technology. The U.S. already identified the Philippines as one of six nations slated for support under the CHIPS and Science Act, which aims to enhance U.S. semiconductor manufacturing.

However, it's also important to acknowledge the Philippines' history of mining-related conflicts. Therefore, the United States must make sure to address issues thoroughly amidst ongoing diplomatic discussions regarding clean energy with the Philippines.

By Sohrab Darabshaw 

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