LONDON: The nickel market is facing a massive supply glut this year as surging Indonesian production continues to outpace global demand.
The International Nickel Study Group (INSG) is forecasting a supply-demand surplus of 239,000 tonnes, the largest in at least a decade and a significant increase from last year’s excess of 105,000 tonnes. It also represents a lift from the Group’s last assessment in October, when it expected a surplus of 171,000 tonnes for this year.
Demand expectations have been tempered, although nickel usage is on track to register healthy 6.1% growth in 2023. It still won’t be enough to absorb the wave of new production coming out of Indonesia. The supply surge, though, is not coming in the form of the Class I refined metal traded on both the London Metal Exchange (LME) and the Shanghai Futures Exchange. That may complicate the pricing impact.
EV TRACTION
The INSG estimates global nickel usage rose by 6.3% last year and forecasts it will almost match that rate this year. It’s a resilient performance given that stainless steel is still the largest component of nickel usage and output of the alloy fell by 5.2% last year, according to the World Stainless Association. Stainless meltshop production fell everywhere, even in China, the world’s largest producer, which registered a 2% year-on-year decline.
Chinese production started recovering in the fourth quarter as the country emerged from zero-Covid restrictions but any positive impact was offset by sharp drops in European and US run-rates in line with slowing economic activity. The INSG expects only “mild growth” in the stainless sector this year.
Taking up the slack from a weak stainless sector is demand for nickel from the electric vehicle (EV) battery sector. Despite weak Chinese sales after the removal of subsidies and the shift towards non-nickel chemistries, the speed and scale of the global switch to EVs means that batteries are the core driver of growing nickel demand.
A total 17,137 tonnes of nickel were deployed onto roads globally in EV batteries in February, according to research house Adamas Intelligence. That was up 19% month-on-month and 47% up on February last year.
INDONESIA RAMPS UP
The coming surplus, however, will not be defined by demand but by production, particularly Indonesian production. The country’s nickel mine output grew by 48% to 1.58 million tonnes in 2022 and by another 44% in the first two months of this year, according to the INSG’s most recently monthly bulletin. Since Indonesia fully banned the export of ore in 2020, all that mine output is now being converted to nickel products.
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