Nickel prices at the LME front extended losses for April after losing 1 per cent in March. However, initially Nickel lead the whole base metals pack as factory activity in China grew unexpectedly in March for the first time in four months and the official Purchasing Managers' Index and as U.S.-China trade talks progressed.
Fall in inventories at LME warehouses to 182,574 tonnes, the lowest since June 2013 made prices trade higher and reach $13,430 by April 3. SHFE on-warrant nickel inventories dropped to 8,718 tonnes from 105,438 tonnes in July 2016. Prices at Shanghai front also fell consistently after touching a high of 104,000 on April 4 and closed the month at 97,920 Yuan, indicating a 4 per cent fall. The nickel market was in surplus during January to February 2019 with apparent demand exceeding production by 16.4 kt. On the whole, the calculated surplus was 88 kt in 2018.
Reported stocks held at LME in February 2019 were 9.6 kt lower than at the end of the previous year. Refined production in January to February 2019 totalled 342.1 kt and demand was 325.7 kt. Mine production during January to February was 345 kt, 23 kt above the comparable 2018 total. Chinese trade data is now available for the first two months of 2019. Chinese smelter output increased by 14 kt compared with 2018 and apparent demand was 14 kt higher than in the previous year. Global demand was 21 kt higher than the previous year. During mid-April, steel prices were supported by firm demand from downstream sectors. Meanwhile, expectations that Beijing and Washington may reach a trade deal along with a 0.6 per cent rise in China's new home prices in March from a month earlier supported the weakness in nickel.
The global nickel market and its key growth sector, electric vehicle (EV) batteries, will face serious supply shortages unless key Chinese-led projects in Indonesia start up in a timely and cost-effective manner. Stainless steel maker Tsingshan’s ambitious project with Chinese battery firm GEM Co Ltd and lithium battery maker CATL aims to set up a nickel smelting capacity of 50,000 tonnes a year in the Indonesian island of Sulawesi. At the same time, the company is working on another Indonesian nickel project at Weda Bay alongside Zhejiang Huayou Cobalt. Meanwhile, Chinese investment in Indonesia is based on its successful development of the Ramu nickel and cobalt HPAL project in Papua New Guinea, but the technology needs to be successfully changed in the island country.
As per studies by INSG, the global nickel market deficit has narrowed to 2,000 tonnes in February from a revised deficit of 3,700 tonnes in January. The February deficit has also narrowed sharply from 7,200 tonnes a Feb-2018. On the imports side, China’s refined nickel imports remained subdued at 40,510 tonnes in Q1 2019, down 33 per cent on a yearly basis.
Any further production of electric vehicles shall push demand for the metal and support prices. Contemporary Amperex Technology Co Ltd (CATL), China’s biggest maker of batteries for electric vehicles, has begun mass production of high-nickel batteries indicating support to the metal in the future.
The author is a research analyst at Karvy Comtrade Limited.