TRADE REVIEW: Asian nickel ore tightness seen easing in Q2 on potential Indonesian supply gain

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.

Asia's nickel ore supply tightness will likely ease in the April-June quarter on potential ramp up in Indonesian output, after the government decided to expedite the approval process for mining quotas.

Indonesia, the world's largest nickel producer, witnessed delays in mining approvals early this year -- resulting in supply concerns and price spikes. The country had extended the validity of mining plans to three years from one, which reduced the frequency of quota re-applications but led to longer clearance times and slowed permit approvals.

Market participants now expect nickel ore supply to gradually improve in Q2 as Indonesia mining quota approvals pick up and shipments from the Philippines recover following the monsoon season, which could also exert downward pressure on nickel prices.

"We expect the global primary nickel market remain a surplus in 2024 of 128,000 mt on expectations that downward pressure on Indonesia's primary nickel output will ease as more quotas are approved," said Jason Sappor, metals and mining research senior analyst at S&P Global Commodity Insights.

In the near term, market participants expect adverse weather conditions and manpower and equipment shortages. Also, major holidays in Indonesia and the Philippines would continue to impact mining operations, as well as class II nickel products such as NPI and nickel sulfate.

Meanwhile, the ongoing concerns about weakening China's nickel ore imports, which dropped 22.5% on the year in January-February, reflected the uncertainties around Indonesian policies and its role as a key supplier.

Q1 nickel prices surge on supply concerns

LME 3-month nickel metal prices surged to a four-month high of $18,551/mt on March 12, rebounding from a 33-month low of $16,007/mt Jan. 22, as Indonesia's mining quota approval process lagged.

Asia's nickel market also drew support in Q1 from tight supplies of MHP (mixed hydroxide precipitate) and nickel sulfate, coupled with bullish sentiment amid concerns over Indonesia's delayed approvals of mining quotas.

Overall, the strong nickel market in Q1 aided other products in the value chain, including nickel pig iron, nickel sulfate, and MHP prices.

NPI prices may extend losses

Nickel pig iron (NPI) production represents the bulk of Indonesia's primary nickel output. Platts, part of S&P Global, assessed daily spot NPI with 10% nickel content at $112/mtu FOB Indonesia April 9, down 1.75% since the assessment was launched on Feb. 19.

NPI prices did not see a sharp fall in Q1 despite weaker-than-anticipated demand from stainless steel mills, but market participants noted that current prices are, however, approaching production costs for some smaller producers, and may extend losses in Q2.

NPI demand from steel mills has been slower than expected amid prevailing weak conditions in the stainless market. One international trader said stainless steel production cuts could happen in Q2, which would likely crimp demand for NPI further.

Nickel sulfate prices perk up

Nickel sulfate prices strengthened in Q1 on tightened supply, as some producers started scaling back production due to low prices earlier.

Some battery makers were also heard to have moved their February orders to January to avoid higher logistic costs during the Lunar New Year holidays, resulting in a mismatch between supply and demand.

Following the holidays in February, downstream consumers, including cathode and precursor makers, gradually resumed production to fulfill March orders, but they did not adequately replenish their inventories, sources said.

Nickel-rich nickel-manganese-cobalt battery cathode material is a major demand driver for nickel sulfate. The planned NMC cathode production in March exceeded that of January and is expected to rise 10%-20% in April, signaling heightened downstream demand for nickel sulfate and supporting price levels.

Platts assessed spot battery-grade nickel sulfate with a minimum 22% nickel content and maximum 100 ppb magnetic material at Yuan 30,000/mt ($4,144/mt) DDP China April 9, up 22.45% since the start of Q1, S&P Global data showed.

MHP demand set to improve

Platts assessed MHP CIF North Asia basis at 79% payables of LME nickel monthly average price April 9, up 7% payables since the start of Q1. The Platts nickel sulfate price for MHP on CIF North Asia basis was assessed at 82% payables of the LME monthly average April 9, up 6% over the same period.

MHP, the feedstock of nickel sulfate, also experienced supply shortage in Q1 amid reduced production and fewer offers from traders.

MHP demand will likely pick up in Q2 as nickel sulfate producers resumed output post the Lunar New Year holidays, which may intensify the supply-demand imbalance and push MHP payable levels higher.

MHP, nickel sulfate prices seen easing in Q2

MHP prices will likely see downward pressure in the ongoing quarter on expectations of increased production from Indonesia as several new projects came online at the start of Q2.

"We expect Indonesian MHP production to increase by around 172,000-200,000 mt to around 920,000 mt in 2024," said a China-based consumer.

This ramp-up in supply, coupled with pick up in mining quota approvals in Indonesia and easing supply constraints in the Chinese nickel sulfate market could weigh on both MHP and nickel sulfate prices in the quarter.