How will the supply and demand of nickel market go in 2022? [institutional point of view]

According to Mandarin Finance, there are different views on global nickel production in 2022. In the face of strong demand and supply, some market analysts believe that there will be surplus and shortage, while others believe that supply and demand will be balanced.

The global nickel market is expected to be oversupplied by 76000 tons in 2022, compared with a shortage of 134000 tons in 2021, according to (INSG), an international nickel industry research group. Global original nickel production is expected to reach 3.12 million tons in 2022, an increase of about 10 per cent over 2021, while demand is expected to be 3.044 million tons in 2022, an increase of about 18 per cent over 2021.

Daniel Briesemann, a commodity analyst at (Commerzbank), a German commercial bank, pointed out in a report that Indonesia, the world's largest nickel producer, is currently expanding its domestic nickel industry with the help of a new high-pressure acid leaching (HPAL) project.

"however, there is a degree of uncertainty about these [supply] figures, particularly production in China and Indonesia," INSG added. "these estimates do not include any adjustments for possible production disruptions."

Indonesia and the Philippines are the two largest producers in the world, but they also have major resources in Australia, Canada, Brazil, Canada, China and Russia.

The key role in energy transformation

Briesemann said that because of the growing market for nickel-cobalt-aluminum batteries for electric vehicles, nickel will play a key role in the energy transformation, so sealed or abandoned mining projects have experienced a resumption of production.

Analysts at Commerzbank said: "New capacity in the value chain has also received new investment. For example, Indonesia is building a nickel pig iron (NPI) production plant. "

(Nornickel) of Norilsk Nickel of Russia said the surge in Indonesian nickel pig iron production would be the main driver of supply growth in 2022. The company is the world's largest producer of premium nickel and palladium and a major producer of platinum and copper.

"however, this expected increase in production is likely to be overestimated if Indonesia resumes the fight against novel coronavirus restrictions," Briesemann said.

In addition, recent power cuts in China have led to a further decline in nickel production, while epidemic restrictions continue to affect production in Indonesia and New Caledonia, according to analysts at (Macquarie) at Macquarie Bank.

High energy demand and the carbon intensity of nickel pig iron hit China's nickel pig iron production in the fourth quarter of 2021, causing China to increase its imports of nickel pig iron and refined nickel, Australian multinational bank ANZ (ANZ) said in a report.

Nornickel expects oversupply

Nornickel said it expected the global nickel market to have a surplus of 59000 tons in 2022 and a shortage of 149000 tons in 2021.

The shortage in 2021 is due to a 17 per cent increase in global demand for nickel, driven by demand from the stainless steel and battery sectors, which account for more than 70 per cent of all nickel demand. The decline in the company's own production in 2021 is also a key factor.

ANZ said that while Indonesia and the Philippines were gradually increasing global supply, supply risks were expected to be high in both countries because of regulatory reforms.

Indonesia is expected to face pressure to reduce the environmental impact of production because most of the country's nickel industry uses coal to generate electricity, ANZ said.

At last year's United Nations Climate change Conference (COP26), the Indonesian government signed a commitment to stop the use of coal, but did not support a clause requiring a halt to the construction and financing of new coal-fired power stations, ANZ added that China also promised not to build coal-fired plants overseas.

"as a result, even if there are sufficient projects to increase nickel production to 1 million tonnes, the carbon footprint of Indonesia's coal-fired power plants could deter battery and electric carmakers that are chasing green nickel supplies," ANZ said.

Relevant departments are also exploring the possibility of imposing a tax on the export of nickel products with a nickel content of less than 70 per cent in order to promote domestic processing. This will be another headwind for nickel supply in 2022. "

Market balance

ANZ said demand for nickel for stainless steel and non-stainless steel production will increase in 2022, which will make the market roughly balanced this year, leaving little room for recovery of currently depleted inventories.

Analysts at TD Securities (TD Securities) expect a slight shortage in 2022, although this weak balance of supply and demand will be tested by Indonesia's ban on the export of various nickel products or the possibility of a tax, as ANZ has pointed out.

"there is still a lot of uncertainty about these policies, but given that government ministers have suggested taxes or export bans on certain mineral products in the past, traders are still worried about risks."

"however, it is not clear whether this restrictive policy will take effect, given the increase in the number of ongoing and planned high-value investments," the Canadian investment bank said. "

British broker Liberum expects nickel prices to reach US $16600 per tonne in 2022, Dow Securities at US $19313 per tonne, Macquarie Bank at US $19375 per tonne, ANZ Bank at US $21000-21500 per tonne, while Commerzbank expects nickel prices to reach US $22000 per tonne by the end of this year.

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