Indonesia's production ramp-up plans are tempering optimism after falling nickel inventories and supply concerns around potential sanctions on Russian products pushed the commodity price to its highest in over a decade Feb. 18.
The London Metal Exchange nickel cash price hit $24,609 per tonne, the highest point since August 2011, while LME warehouse stocks fell to their lowest level since December 2019 at 83,328 tonnes the day before, according to S&P Global Market Intelligence data.
Meanwhile, a "severe squeeze in the nickel market" pushed European exchange prices past $22,000/t for the first time in a decade, according to a Feb. 21 note from research firm AME.
"The primary theme has been falling inventories of Class 1 nickel — used in the electric vehicle battery segment — as the market was caught off-guard by the strength of demand from the emerging battery sector and the continued strength from the market’s dominant sector, stainless steel," AME said.
Global nickel inventories have only risen on one day since the start of November 2021 and have now fallen to their lowest level since 2008 due to growing EV demand, according to a Feb. 21 Westpac note.
Further, "54% of battery capacity deployed onto roads globally in new plug-in electric vehicles was powered by high-nickel cathode chemistries" in 2021, particularly in the Americas among the likes of Tesla Inc., Volkswagen AG, Ford Motor Co. and Hyundai Motor Co., according to a Feb. 17 note from research firm Adamas Intelligence.
Meanwhile, a record 286.2 GWh was deployed onto roads in the batteries of new passenger EVs globally in 2021, up 113% year over year as EV sales soared 83%, according to Adamas.
Though Indonesia's continued capacity buildout will help to both rebalance the market and "pick up some of the slack in production of Class 1 products," AME said this will be a gradual process.
AME forecast the primary nickel price to average $19,000/t in the current quarter and $18,250/t for the whole of 2022, easing to $17,000/t in 2023 as "supply currently under development reaches production."
The week ended Feb. 18 also saw Zhejiang Huayou Cobalt Co. Ltd.'s Huayue joint venture ship its first batch of over 9,500 tonnes of nickel and cobalt hydroxide products from Morowali Port in Indonesia to China's Ningbo port.
"The shipment from the Huayue project in Indonesia marks the start of what is expected to be a rapid increase in supply of nickel for batteries from the country this year," said Benchmark Mineral Intelligence in a Feb. 19 note.
Benchmark Mineral forecast the supply of nickel intermediate mixed hydroxide precipitate for batteries to rise fivefold this year, which should help alleviate EV batteries' growing demand for nickel. Its analysts, however, see demand for "more powerful nickel-containing batteries" growing 42% in 2022 as EV sales accelerate.
The risks of sanctions on supply from Russia, which produces 6% of the world's nickel ore, are also being priced into nickel and aluminum markets, ANZ said in a Feb. 9 note.
While Ukrainian President Volodymyr Zelensky called for preemptive sanctions on Russia Feb. 20, U.S. President Joe Biden's administration opted not to place more sanctions on Russia that day.
The U.S. already imposed sanctions in January against four current and former Ukrainian officials who were allegedly involved in Kremlin-directed influence activities to destabilize Ukraine.
Market Intelligence's Metals and Mining Research team sees the global primary nickel market moving to a 43,000-tonne surplus in 2022 from an estimated 178,000-tonne deficit in 2021 as "the current market tightness eases due to continued growth of Indonesian primary output and moderating global demand."