Nickel production volumes among the world's leading producers fell short of demand in the final months of 2021 despite the top five companies recording quarter-over-quarter gains, as price spikes, market tightness and rising demand persisted for the base metal used in steel and battery sectors.

Total primary nickel production for the top five producers during the fourth quarter of 2021 slipped 4.2% compared to the year-ago period, while production volumes climbed 32.9% quarter over quarter, according to S&P Global Market Intelligence data. The quarter-over-quarter increase was largely due to Brazilian miner Vale SA bringing facilities back into operation following a prolonged labor strike and mine accident.

Despite the quarterly uptick in production, primary nickel markets still faced an estimated 181,000-tonne deficit in 2021. However, increasing output from Indonesia and easing global demand are expected to shift the market into a 34,000-tonne surplus in 2022, according to S&P Global Commodity Insights senior analyst Jason Sappor.

Primary nickel refers to the nickel in smelter and refinery products, including refined nickel used to make electric vehicle batteries, as well as nickel pig iron and ferronickel used in steelmaking.

Sanctions loom

The world's leading producer of primary nickel, PJSC Mining and Metallurgical Company Norilsk Nickel, saw production levels decline slightly in the fourth quarter of 2021 compared to the year-ago period, with the Russian company producing about 5.7% less primary nickel than the fourth quarter of 2020. Although it maintained its ranking as the world's No. 1 producer of primary nickel during the quarter, Norilsk Nickel's operations could face disruptions after Russia's invasion of Ukraine.

Commodity exports from Russia have not been hit with sanctions since the invasion of Ukraine on Feb. 24, but the possibility of future sanctions or other supply chain disruptions could influence the production outlook for Russia, the world's No. 1 class 1 nickel producer. The London Metal Exchange three-month nickel price increased on the news of Russia's invasion of Ukraine, reaching an 11-year high of $25,575 per tonne in trading Feb. 24, and LME stocks tumbled in the run-up period, dipping 11.6% throughout the month to 82,314 tonnes as of Feb. 22.

"Our operations are proceeding as usual, we continue to meet all our contractual obligations and remain committed to our clients and partners," Norilsk Nickel wrote in an emailed statement on March 1.

Mined nickel keeps pace

Production among the top five mined nickel producers rose sharply in the final three months of 2021, increasing 25.1% year over year to 23,995 tonnes, and increasing 4.6% from the third quarter.

Tokyo-headquartered Sumitomo Corp. restarted its 54%-owned Ambatovy nickel mine in Madagascar in March 2021 after temporarily stopping production the year prior due to the COVID-19 pandemic. The company's mined nickel output consequently increased by 5,300 tonnes year over year, helping boost the world's total volume of mined nickel, which is the nickel in ores coming out of the ground.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.