The nickel market is still trying to find its way after a decade of surplus (chart 7) pushed prices down from a peak of $25/lb in 2007 to $3.50/lb in early 2016, with prices currently trading around $6.25/lb. Nickel demand has outpaced supply since last year, but the market will require multi-year deficits to draw down the significant glut of excess metal that has been built up in the storage sheds of global exchanges.
While supply shortages have reduced exchange-listed inventory levels by more than 30% since early 2016, stocks still represent more than 70 days of global nickel demand compared to sister base metals: aluminium at 13 days, copper at 11 days, and zinc at 7 days (chart 8).
Nickel prices are expected to gradually move higher over the next half decade as inventories normalize, averaging $6.00/lb in 2018 and $6.50/lb in 2019. Nickel prices are undeniably benefitting from a recent sentiment boost related to feverish EV forecasts, with many viewing nickel as one of the primary beneficiaries of the battery industry build out alongside other metals more commonly associated with the electric revolution like copper, cobalt, and lithium.
However, while EV batteriescould provide significant to future nickel demand, it is worth remembering that nickel demand over the next five years will remain governed primarily by the stainless-steel sector—stainless steel accounted for 69% of end-use nickel demand in 2018 vs only 3% for EV batteries. Overall nickel demand has been strong over the past year but we’re beginning to see some early warning signs in China that could indicate softer demand conditions in the world’s largest nickel consumer through the rest of the year.
Stainless steel demand has been weaker than expected following the Chinese New Year and inventories are building up at domestic mills, which will likely lead to stainless run-cuts and reduce nickel demand from its primary end-use sector.
On the supply side of the ledger, nickel’s near-term outlook is split between the slowerthan-expected normalization of Philippine ore exports and the resumption of Indonesian shipments.
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