Nickel, an indispensable raw material for three quarters of the annual global stainless steel production, has experienced turbulent times in 2022. It has already been popular as an attractive speculation object for some time. Which in March 2022 led to the tonne of nickel being chased up to around USD 100,000 per tonne in a speculation deal gone wrong, leaving a hole of almost USD 8 billion in the petty cash of a major Chinese stainless steel producer.
Since then, attempts have been made to push nickel back down in price. Once by suspending and limiting trading on the London Metal Exchange (LME) after the March event. And later in the year, there has been no shortage of headlines to suggest that nickel is in surplus. Apart from a few manageable volatile reactions in the market, the nickel price has been moving steadily upwards since mid-July 2022 not only on the European commodity exchange LME, but also on the Shanghai Future Exchange in China. Official inventories are low on both trading venues and have fallen by more than 50% since January on the LME, for example.
This is partly due to the loss of confidence in nickel trading on the London Commodity Exchange, but also to availability. One of the world’s major producers has failed to expand its production, let alone raise it to 2019 levels, after significant production shortfalls in 2020 and 2021. Even if attempts are made to make this look good. Additional production capacity in Indonesia has only started this year and whether this can compensate for the missing Russian production volumes remains to be seen. Especially in terms of quality.
The very exciting rally in nickel contracts that began towards the end of October cannot yet be assessed conclusively. However, the price increase of almost 36% by 15 November 2022 is another prime example of how press reports, rumours and speculation in this commodity segment are used to bet on and influence rising or falling prices. It is enough to look back to the spring of 2021, when the Chinese company mentioned above briefly caused the market to plummet with a press release about the production of nickel matte for vehicle batteries.
Another current challenge for the nickel processing industry is the increase in demand, among others from the battery industry, which is increasingly becoming a competitor for stainless steel producers. Moreover, as the Indonesian government has had to admit this year, the nickel reserves there are limited and if the exploitation of nickel continues as intensively as before, the valuable deposits are likely to run out soon.
The Indonesian government has therefore been thinking aloud for some time about introducing a nickel export tax, as the export ban at the behest of the European Union is likely to be classified as illegal by the WTO in the foreseeable future.
With the further development of populous countries such as India and China, with several billion consumers and a massive economic need to catch up with western industrial nations, the demand for the raw material is likely to increase further, not only with regard to stainless steel.
In the face of climate change and the need to switch to alternative energies, nickel has gained massive importance as a battery metal. The data currently freely available show that the world could run out of nickel by the end of this decade with the currently known raw material reserves and the necessary expansion of production.
This is a good indication why the European steel producers, among others, are lobbying so vehemently for the introduction of an export ban on steel and stainless steel scrap and are themselves already pointing to the finite nature of nickel.
This is because green hydrogen and CO2-neutrally produced Direct Reduced Iron (DRI), which are named as two of the three important raw materials for the green transformation in steel production in the electric arc furnace (EAF), are only available in homeopathic quantities. The third raw material, scrap, is therefore the guarantor in the short and medium term for operating the EAF of stainless steel producers at all in line with the increasingly strict EU benchmarks for the free allocation of ETS allowances. This does not even take into account the drastically increasing energy demand for EAF, hydrogen electrolysers and DRI production.
Nickel is therefore increasingly becoming the new oil or natural gas and the fuel for the green transformation in steel production, and scrap or stainless steel scrap is thus becoming a hard currency. In conclusion, there is a lot of exciting potential for the price development of nickel and also for stainless steel not only in the coming year 2023.
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P: +49 7642 9282851
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