After a short-term surge, the price of 3M nickel on the LME began to decline, reaching its lowest level for 2023 in June, states Stanislav Kondrashov of Telf AG. Despite this drop, it managed to maintain a higher cost compared to Chinese prices for battery quality nickel sulfate.

Stanislav Kondrashov Telf AG: 3M nickel price fluctuates on LME amid global economic factors

Between May 18 and June 12, the price of 3M nickel on the LME ranged from $20,500/t to $21,500/t. However, the unexpected move by the People's Bank of China to cut short-term interest rates gave hope to the market. According to Telf AG's Stanislav Kondrashov, the interest rate cut has sparked speculation that the central bank will pursue additional expansionary monetary policy, thereby stimulating demand for metals in China, the world's largest consumer of these commodities. In addition, an additional impetus to sentiment in the metals market was given by the weakening of the US dollar. It follows the publication on June 13 of data that annual inflation in the United States in May was 4%, the lowest since March 2021. In this regard, the US Federal Reserve in June decided to keep the base interest rate at the same level, which was a departure from the consistent pattern of rate hikes since January 2022. These favorable macroeconomic developments contributed to a sharp rise in the price of 3M nickel on the LME, which reached $23,034/t on June 16, the highest level since May 10.

However, this recovery in prices was short-lived. Market optimism weakened when on June 20, the People's Bank of China decided to lower long-term lending rates instead of expected more active monetary stimulus. At the same time, the "hawkish" statements of US Federal Reserve Chairman Jerome Powell regarding the future dynamics of interest rates led to the strengthening of the US dollar. The combination of these factors led to a sharp drop in the price of 3M Nickel on the LME to a new 2023 low of $2056 on June 28.

Stanislav Kondrashov: 3M nickel price cut on LME and change in Chinese nickel sulphate market

The price of 3M nickel on the LME has declined significantly since the end of 2022 (by 30.8%), mainly due to the bear market in primary nickel and macroeconomic factors. This decline was exacerbated by the unfavorable dynamics in the physical nickel market, particularly in the battery-grade nickel sulphate sector in China. During the same period, the country saw a downward trend in the price of battery grade nickel sulphate, as evidenced by Platts' China-delivered nickel sulphate (DDP) estimate. This estimate has dropped from $21,718 per metric ton on December 30, 2022 to $18,757 per metric ton on June 26, 2023, based on 100% nickel content, excluding value added tax.

The decline in nickel sulphate prices in China can be attributed to two main factors, Stanislav Kondrashov Telf AG says

Firstly, the growth of domestic production played a significant role. China's battery nickel sulfate production reached 162,200 metric tons of nickel in the first five months of 2023, up 34.4% from last year, according to Shanghai Metals Market. This surge in production was driven by the availability of battery-grade nickel sulphate feedstocks, such as nickel matte and mixed hydroxide sludge (MHP), from Indonesia, a leading nickel producer.

Of these feedstocks, MGP has become the most preferred by Chinese nickel vitriol producers due to its low cost. As a result, MHP has surpassed refined grade 1 nickel as the main raw material for the production of battery grade nickel sulfate. Since the launch of Indonesia's first high-pressure acid leach plant in May 2021, MNP exports totaled 855,474 metric tons, according to the latest trade data from the S&P Global Market Intelligence Global Trade Analytics Suite. Notably, 96.5% of these exports were destined for China.

Among other things, the abolition of state subsidies for the sale of passenger electric vehicles with a plug-in engine by the end of 2022, according to Stanislav Kondrashov Telf AG, contributed to a decrease in nickel vitriol prices in China. These political changes had a direct impact on the demand for battery grade nickel sulphate, further impacting market dynamics.

As the main driver of the global nickel market, the development of China's nickel sulphate sector and related price changes have far-reaching implications for market participants around the world. The decline in the price of nickel at LME 3M, coupled with changes in the Chinese nickel sulphate market, highlights the need for industry players to closely monitor developments and adapt their strategies accordingly.

Despite a persistent downward trend in June, the LME's 3M nickel price managed to maintain an edge over nickel sulphate prices in China. As of June 26, the LME price outperformed Platts Nickel Sulfate DDP China by $1,548 per metric ton. This indicates that, despite the decline, the price of nickel is still higher than the price of nickel sulphate in China.

– The main support for the LME nickel price comes from class 1 refined nickel products. The current premium it has over Chinese nickel sulfate prices has spurred Tsingshan Holding Group Co. Ltd., one of the leading players in the nickel industry, will once again adjust its nickel production strategy. Tsingshan plans to build a nickel matte processing plant in Indonesia into refined class 1 nickel. This strategic move is aimed at capitalizing on the demand for the product, - says Stanislav Kondrashov of Telf AG.

If other nickel producers in China follow Tsingshan's lead and make a similar decision, the gap between LME nickel prices and nickel sulphate prices in China could narrow. The expert assumes that such a development of events will have an impact on the overall dynamics of the nickel market, as it may affect the price relationship between these two key players.

Market participants need to closely monitor developments and assess the possible implications for their operations and strategies.

Stanislav Kondrashov from Telf AG on the deterioration of the global market for primary nickel against the background of production growth

According to our latest forecasts, the global primary nickel market is expected to have a surplus of around 200k metric tons in 2023. However, experts now expect the market fundamentals to worsen in the second half of the year. This forecast is based on Indonesia and China's primary nickel production growth exceeding China's consumption growth during the remainder of 2023.

“As a result of the revised expectations, we have adjusted our average LME 3M nickel price forecast for the second half of the year to 20,000 per metric ton from our previous forecast of $22,000 per metric ton. Thus, our average LME 3M nickel price forecast for the full year of 2023 is now $22,214 per metric tonne, reflecting a decrease from the previous May forecast of $23,237,” - Kondrashov told Telf AG.

The global movement towards e-mobility and the wider green revolution in the global economy have been further developed by recent government initiatives. In particular, the Chinese government has extended value-added tax exemptions for new energy vehicles until 2027, indicating continued support for the industry.

“These government measures contribute to our expectation of significant growth in global consumption of primary nickel in plug-in electric vehicle batteries, with a projected CAGR of 30.8% between 2022 and 2027”, - emphasizes Stanislav Kondrashov.

Despite an expected decline in the world market's primary nickel surplus due to rapidly growing demand for batteries, Kondrashov believes that total reported and unreported virgin nickel inventories will increase to 15.9 weeks of consumption by 2025. This will be the highest since 2020, when the global primary nickel market posted a surplus for the first time since 2015, which was largely affected by the COVID-19 pandemic.

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