Nickel prices are expected to move sideways, with the market having moved more or less back into balance, with Class 1 nickel remaining oversupplied and Class 2 in a small deficit due to mine closures, Macquarie analyst Jim Lennon said at the London Metal Exchange Seminar Sept. 30.
He said, while the price of nickel pig iron and the price of aluminum-grade nickel disengaged in 2022, with the gap as much as $8,000-$9,000/t earlier in 2024, there was now a closer correlation between the two, with the gap having narrowed to $4,000/t.
Lennon pointed out that, coincidentally, this level was the conversion cost of taking a NPI unit and converting it into a Class 1 metal unit.
Platts, part of S&P Global Commodity Insights, assessed NPI at $121/mtu FOB Indonesia Sept. 30, up from $114/mtu when it was launched on Feb. 19.
"What we've seen in China and Indonesia is a massive increase in class 1 nickel production. From the start of 2023, the production in China and Indonesia was under 200,000 metric tons per year and its now approaching 400,000 t/y," Lennon said.
He forecast Indonesia's share of global production to reach close to 60% in 2024, while it had only been about 20% seven or eight years ago.
"It's almost inevitable that Indonesia, plus China, going to be maybe 75% of the market within the next five years, simply because of the lack of projects elsewhere," Lennon said.
He said there had been a tightening in the Class 2 market, with closures mainly in NPI products. Additionally, a recent oversupply in Class 1 nickel has begun to lead to production cuts, while projects in Indonesia were also being delayed because of oversupply and overcapacity.
Since 2020, Indonesia had supplied around 1.5 million metric tons per year, while the total nickel market was about 3.5 MMt/y, Lennon said, noting that the rest of the world's supply had fallen by over 400,000 t, mostly due to market-related reasons, especially ferronickel supply.
Lennon said another trend was NPI moving into other markets.
"It was 98%, 99% China for a long time, from Indonesia. Now we're starting to see NPI coming to Europe and also to India, Thailand, Vietnam and South Korea," he said, attributing this to it being cheap compared to the other nickel units, despite its higher CO2 characteristics.
He said this was having a negative impact on secondary nickel pricing in Europe.
Battery market
While there had been a lot of focus on nickel for batteries in electric vehicles, this was still only about 15% of the market, with two-thirds of the market still being stainless steel, Lennon said.
"We've seen a slowdown in the growth rate for batteries over the last two years, but at the same time, we've actually seen quite strong growth in stainless steel; that's changed the mix of demand for nickel," Lennon said.
He said the battery market had moved sideways over the last two years.
"That's been due to destocking of battery raw materials, but also the movement in China towards non-nickel batteries, LFP batteries. And those cars containing those batteries have been exported into Europe and the US as well," he said, adding that stainless steel had been the driver of nickel over the last few years.
Stainless steel
On stainless steel, Lennon said there was a long-run trend growth rate of about 5% a year for the last 50 years, which indicated it was gaining market share against other materials.
"There's no question that, in China, the stainless steel price is about half the price that is in Europe and the US, and that has been encouraging substitution towards stainless steel," Lennon said.
In China, he said Tsingshan dominated the market, with operations in China and Indonesia and more output than the combined production of the US, Japan and Europe, with its global share around 30% in 2024.
Lennon forecast a slowdown in the stainless steel market in 2025, as sentiment had turned slightly bearish, although he said batteries would continue to be an important demand driver.
Aluminum
On aluminum, Harbor Aluminium Managing Director of Market Intelligence and Industry Consulting Jorge Vazquez said at the seminar that he did not expect any aluminum supply scarcity in the next few years, as there was ample supply, with production continuing to outpace demand for the next two years.
He said the main story was on the secondary side, as expansions were "taking place in a massive way."
Vazquez said secondary aluminum supply was expanding almost eight times more than primary aluminum.
"Once you put [primary and secondary aluminum] through the furnace, its the same aluminum," Vazquez said, noting that the secondary expansion was taking place in the US, Europe and China.
"We are just beginning to see this massive expansion, and scrap spreads are already at the highest we have seen them ever, and at least 70% of those secondary expansions haven't even started," he said.
Vazquez was not bullish on China, saying that, in the best-case scenario, it would avoid a crisis, due to a housing crisis, global trade barriers increasingly targeting China, as well as unprecedented debt levels.
"Best-case scenario, China avoids a recession, but still not enough to face the realities of economic slowdowns and even a recession down the road," Vazquez said.
