What Are the Causes behind Frenzying Nickel Price in 2022? Will It Re-stage in 2023?

SHANGHAI, Jan 9 (SMM) - SHFE nickel price opened the year 2022 with consecutive growths, and refreshed the historical high during the night session of March 24 at 281,250 yuan/mt amid extreme LME nickel price moves as well as fermenting Russia-Ukraine conflicts. 

Nickel price was then gradually subject to the fundamentals amid combined effects of spreading covid and macro factors, and kicked off the downward course. It hit a new low since December 20, 2021 at 142,500 yuan/mt on July 15, 2022. 

Nickel price resumed the upward trend in the third quarter when the new energy sector began to show strengths, featuring rising operating rates of battery companies, improving orders and depleting precursor stocks in addition to the rapid expansion of top-tier market players. SHFE nickel recorded an annual growth of 53.05% throughout 2022 as of December 30. LME nickel demonstrated a similar trend in 2022. It showed a V-shaped trend after peaking at $55,000/mt on March 7, with an annual increase of 44.43%.

The spot market was alike. SMM #1 refined nickel price refreshed the historical high on March 9, and then moved the all the way down before rallying approaching the end of the year, recording an annual growth of 56.5%.

Fundamentals in 2022

Supply: According to the SMM Database, domestic refined nickel production maintained an upward trend in 2022. SMM estimates that global pure nickel production could reach 840,000 mt in 2022 considering the commissioning and resumption of capacity in 2022 and 2023. Assuming that pure nickel manufacturers will produce normally and after excluding uncontrollable factors, pure nickel output is likely to be 910,000 mt by 2026. Therefore, the pure nickel market is more than likely to be oversupplied under the expectation that the global demand for pure nickel will decline while the supply will rise.

Inventory: In 2022, both domestic and overseas pure nickel stocks fell. LME nickel inventory recorded a collective drop of 45,780 mt in 2022 while it shall be reminded that LME nickel once surged to $100,000 /mt amid mounting supply concerns amid escalating Russia-Ukraine conflicts in the first quarter. SHFE nickel inventory fell 2,363 mt through 2022, and the social inventory across major markets in China declined roughly 5,000 mt in one year.

Demand: LME and SHFE introduced policies such as deferred delivery to bring down nickel price, but LME nickel has lost its liquidity. In this case, the demand for pure nickel has dropped significantly. With regard to NPI, the palpably oversupply made NPI almost the most cost effective raw material to produce stainless steel among all nickel-based materials. Though some NPI capacities were delayed in terms of commissioning, the market will be firmly oversupplied, squeezing the demand for pure nickel and other nickel-based raw materials in terms of stainless steel production.

According to SMM research, among all the primary nickel-based raw materials, the proportion of pure nickel stood at 3.32% in 2022 around the globe, which is likely to drop to 2.44% by 2026. On the contrary, due to better cost efficiency of NPI, its proportion of NPI in global stainless steel production will increase from 66.70% in 2022 to 74.36% by 2026.

Outlook for nickel market in 2023

In 2022, under the background of the Federal Reserve's continuous interest rate hikes to curb inflation, global economic recession, and sharp decline in overseas consumption, especially in European countries, the demand for nickel in stainless steel and new energy sectors maintained positive growth, and the demand for nickel in new energy sector added more than 30% year-on-year. The alloy sector, driven by military industry, increased significantly, and only the electroplating industry performed poorly during the year.

SMM believes that in 2023, there will be a significant surplus of primary nickel mainly contributed by NPI. In addition, refined nickel will also be slightly oversupplied. Nickel sulphate, on the other hand, is unlikely to be in great glut due to mismatching between raw material supply and nickel sulphate capacity. In addition, it is repeatedly reported that the Indonesian government will increase export taxes on nickel products, which may affect the pace of NPI production and the supply situation. 

On the whole, combining the influences of the fundamentals and macro front in 2023, nickel price will still be subject to wild fluctuations, and is likely to fall as a whole amid expected oversupply.