TRADE REVIEW: Rise in Q3 Asian nickel prices likely to be capped on supply surplus

This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal, copper , alumina, cobalt, lithium, nickel and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations.

Asian nickel prices are likely to see limited upside in the third quarter on weak market fundamentals due to thin downstream demand for nickel-manganese-cobalt batteries and stainless steel amid rising primary nickel output.

"We expect weak global primary nickel market fundamentals -- emphasized by our forecasts for total primary nickel stocks [in terms of weeks of consumption] to reach a four-year high in 2024," said Jason Sappor, metals and mining research senior analyst at S&P Global Commodity Insights.

Despite recent supply disruptions following delayed Indonesian nickel mining license approvals and mine shutdowns amid social unrests in New Caledonia, the world's third largest nickel-producing country, primary nickel is expected to remain in an oversupply of 98,000 mt in 2024, Commodity Insights data showed.

To deal with supply disruptions, Indonesia and China -- forecast to make up 72% or 2.63 million mt of global primary nickel production -- were seen increasing Philippines nickel ore imports in the second quarter. Indonesia saw a 24% month-on-month jump in imports to 280,000 mt in April, according to BPS-Statistic Indonesia, and China imported 4.61 million mt, rising 28% month on month in May, China customs data showed.

According to market participants, despite progress in Indonesia's nickel mining license approvals, Philippines ore supply to Indonesia is expected to continue into Q3 as heavy rainfall would inhibit Indonesian mining production.

Turbulent Q2 for nickel

Significant fluctuations in London Metals Exchange nickel prices were observed in Q2.

LME 3M nickel prices rose to $19,739/mt April 22, following news of the exchange's ban on the delivery of Russian material. Prices eventually exceeded $20,000/mt, reaching $21,615/mt May 20 on supply disruption amid ongoing protests in New Caledonia. However, LME nickel prices dropped to $17,291/mt June 28 and saw a downward correction during the month on bearish sentiment stemming from market oversupply and weak buying activity.

The LME nickel price trend underpinned the prices of other nickel products, including nickel pig iron (NPI), mixed hydroxide precipitate (MHP) and nickel sulfate in Q2.

Q3 NPI prices

NPI prices had a weak start to Q2 on lackluster demand from steel mills, dropping to $112/mtu FOB Indonesia April 3, the lowest since Platts, part of Commodity Insights, launched the assessment Feb. 19, 2024.

The Platts-assessed NPI prices saw significant gains in May and reached a high of $123.20/mtu FOB Indonesia May 28, supported by supply concerns from New Caledonia despite persistent weak demand from stainless steel mills.

However, the upside in Q3 NPI prices is expected to be capped on weak Chinese stainless steel demand. The production in stainless steel mills is expected to be down 7% on the month in July, according to market participants.

Platts assessed daily spot NPI with 10% nickel content at $117/mtu FOB Indonesia July 17, marking a 1.6% rise since the start of the assessment.

Nickle sulfate demand

Chinese nickel sulfate rose to its highest in 2024 at Yuan 33,000/mt DDP China on May 24, Commodity Insights data showed, on the back of higher production costs supported by the high LME nickel prices.

However, prices plunged 18.2% from Yuan 33,000/mt on June 3 to Yuan 27,000/mt DDP China, June 28, on weak demand for NMC batteries in the domestic and overseas markets, as well as the seasonal lull period as most countries head for summer holidays.

NMC cathode production in the Chinese domestic market saw a 10%-20% decline in June, according to market participants. NMC batteries remain a significant driver for nickel sulfate demand, accounting for 13.6% of global primary nickel consumption in 2024, Commodity Insights data showed.

Platts assessed spot battery-grade nickel sulfate with a minimum 22% nickel content and maximum 100 ppb magnetic material at Yuan 27,000/mt ($3,814/mt) DDP China July 17, up 10.82% since the start of Q2, Commodity Insights data showed.

MHP demand and supply diverge

Upstream, the supply of MHP -- a nickel sulfate feedstock -- is expected to increase in the second half of 2024 with more projects coming online, such as PT Obi Nickel Cobalt and Phase II of PT QMB New Energy Materials. Market participants concurred that there was ample supply in the market due to higher production in Indonesia.

However, the market showed signs of slowing demand, especially in the downstream battery sector. Market participants said that MHP demand remained limited due to negative margins, owing to suppressed nickel sulfate prices. China, a major importer of MHP, saw its inflows of the feedstock fall 13% month on month to 130,044 mt in May, customs data showed.

Platts assessed MHP CIF North Asia basis at 77% payables of LME nickel monthly average price July 17, down 4% payables since the start of Q2. Platts nickel sulfate price for MHP on a CIF North Asia basis was assessed at 83% payables of the LME monthly average July 17, up 1% over the same period.

The all-in price, as calculated from the payables basis of the LME nickel price, was at $13,477/mt, and the all-in price, as calculated from the payables basis of the Platts nickel sulfate price, was at Yuan 101,238/mt ($14,915/mt) July 17.

Nickel geopolitics

The market continues to watch nickel-related geopolitical developments. Many Indonesian refineries were classified as "foreign entities of concern" under the US government's latest guidelines concerning the definition of FEOCs on May 3.

The US is expected to become the main driver for global primary nickel demand in percentage terms with a 172% surge in consumption to 208,000 mt between 2023 and 2028, Sappor said.

"[The] US could become the main nickel trading partner of the Philippines if a closer nickel trading relationship develops and is sustained. This would be detrimental to the long-term future of class 2 nickel production in China, particularly NPI," said Joenelle Donato, associate research analyst at S&P Global Commodity Insights Metals and Mining Research. "China has become reliant on Philippine ores since Indonesia's export ban in 2020."