Indonesia's domestic demand for nickel ore to jump 30% in 2022: report

Indonesia's domestic demand for nickel ore is projected to rise by 30% to 100 million mt in 2022, Indonesian newspaper Bisnis Indonesia reported Feb. 9, citing Indonesian Nickel Miners Association secretary general Meidy Katrin Lengkey.

The increase is in line with the number of nickel processing smelters expected to be operational, with four projected to operate in 2022, according to Bisnis Indonesia.

The surge in demand is likely to be supported by the presence of a cathode precursor plant, Bisnis Indonesia reported, adding that Indonesia's Joko Widodo had inaugurated a battery factory for electric vehicles in West Java in September.

Indonesia is a major producer of several key metals. The country has around a 17% global share of nickel ore. Indonesia has one of the world's biggest reserves of nickel, with a 22% global share.

Global nickel demand is largely driven by the stainless-steel sector, which accounts for over 70% of all nickel demand. The mineral is also set to play a pivotal role in the energy transition due to the growing market for nickel-cobalt-aluminum batteries used in electric vehicles.

Nickel market

Nickel prices shot up at the end of the year due to market tightness, which was further exacerbated in mid-January when a market squeeze pushed the metal to test the $24,000/mt mark, UK brokerage Sucden Financial led by head of research, Geordie Wilkes, said in a research report.

Currently, the price shows no signs of abating, as both the Shanghai Futures Exchange and London Metal Exchange markets are being squeezed, Sucden said.

JP Morgan analysts said in a research note: "Chinese SHFE nickel inventories have not displayed the typical [Lunar New Year] seasonality of other metals over recent history, drawing over the holiday period in each of the last five years."

"Though, at just below 3,000 mt of nickel left in SHFE warehouses, it's sort of a moot point as exchange stocks are already critically low. Moreover, LME stocks of nickel have continued to draw and are now down to 87,500 mt, with only 46,000 mt on warrant," JP Morgan said.

The nickel deficit has the potential to further expand, said StoneX Group's head of metals and bulks fund sales, Michael Cuoco.

"Producers will need greater price incentives to bring capacity to 100% (if possible), if they are not flat-out producing as much as possible already," Cuoco said.

Sucden said there are a number of events that have the potential to push prices further during the quarter, this on the back of geopolitical tensions between Russia and Ukraine, and the possible export levy from Indonesia.

"Overall the fundamental demand picture remains strong, and our range for the quarter is at $19,030-$25,200/mt," Sucden analysts said.

UK broker Liberum's Q1 2022 nickel forecast is an estimated $18,000/mt, Standard Chartered's at $21,000/mt and JP Morgan's at $23,000/mt.

The LME three-month spot nickel price was trading at $23,600/mt ($10.70/lb) as of 10:32 GMT Jan. 20, against the closing price of $23,187/mt on Feb. 9.