Nickel Market Analysis During LME Week 2024

During the 2024 LME Week, nickel was labeled the "least liked" metal among base commodities. A survey by Macquarie confirmed that market participants preferred to short nickel, while metals like copper and tin were viewed more favorably for long positions.

Despite this bearish outlook, nickel prices unexpectedly surged due to new economic stimulus measures from China.

Pricing Structure Challenges

A significant issue for nickel's market perception is its fragmented pricing structure. LME-grade nickel accounts for only about 25% of global production, and its pricing has diverged sharply from lower-cost nickel pig iron (NPI), which dominates the supply chain. Currently, NPI prices are at a discount to LME nickel; analysts expect the gap to narrow to around $4,000 per ton to reflect conversion costs.

Inventory and Production Trends

Rising inventory levels on the LME, driven by increased production in China and Indonesia, have intensified bearish sentiment. Indonesia, now responsible for 63% of global supply, has ramped up production despite challenges such as declining ore grades and regulatory delays.

Supply constraints related to ore shortages could limit price declines, but most analysts believe this will only cap further downturns, not initiate recoveries.

Demand Concerns

There are growing concerns about weakening demand from Europe and the U.S., impacting key nickel consumers like the stainless steel and electric vehicle industries. The shift towards lithium iron phosphate (LFP) battery technology, which does not rely on nickel, further complicates the outlook.

Macquarie anticipates that battery demand for nickel will not see substantial growth until 2025, with modest projections compared to earlier expectations.

Future Outlook

Production growth in Indonesia is beginning to stall due to adverse weather, ore shortages, and delays in mining permits, with authorities expecting ore tightness to persist until mid-2025. This situation adds uncertainty to the market and may present an upside risk for nickel prices if disruptions increase or if demand stabilizes unexpectedly.

Despite its recent rally, nickel prices face a challenging environment. While potential supply disruptions and gradual recovery in stainless steel demand offer some hope, the market is still encumbered by structural challenges. For now, nickel remains in a delicate balance, vulnerable to macroeconomic shifts and changes in battery technology.