Demand for nickel is intrinsically linked to industrial output, with over half being used in construction, automotive and consumer goods, and perhaps a further 30% consumed in other industrial processes. Because of the difficult global trading conditions last year, nickel suffered an extremely poor second half of 2018, falling almost 29% to end last year at only US$10,604/t. However, as the graph below illustrates (LME nickel cash price), there has been a marked improvement this year, with the price up 19% in the past six months, closing the first half at US$12,670/t. This is up almost 68% from the low of US$7,560/t in February 2016.
The use of nickel has been traced as far back as 3500 BC, but it was only isolated, and classified as a chemical element, in 1751 (nickel was initially mistaken for a copper mineral, and its name comes from that of a mischievous mining sprite in German mythology).
Nickel is used extensively in stainless steel and other corrosion-resistant alloys, and has long been used for plating iron and brass, coating chemistry equipment and the manufacturing of certain alloys that retain a high silvery polish. It is also one of only four elements (the others being iron, cobalt and gadolinium) that are ferromagnetic at room temperature.
Nickel was the sixth most valuable mined commodity last year, with the 2.13 Mt extracted being valued at some US$28 billion (the metal price averaged US$13,190/t in 2018).
Almost US$300 million was spent in 2018 on nickel exploration, with 34% of this targeted on projects in Australia and 19% in Canada. S&P Global Market Intelligence (SPGMI) reported that 49 companies were active in nickel exploration in Australia and 25 in Canada.
The largest producers last year were Norilsk Nickel (207,600 t of metal), Glencore (178,400 t) and Vale (157,800 t), with the major production sites being the Sudbury region in Canada, New Caledonia and Norilsk in Russia.
According to SPGMI, the largest reserves and resources of nickel are in Indonesia (39.2 Mt but only 10 active projects), Australia (33.5 Mt and 65 projects), Russia (25.6 Mt; 10), Canada (19.0 Mt; 46), Philippines (13.5 Mt; 18), South Africa (10.2 Mt; 18) and Brazil (9.8 Mt; 9).
Mine restarts at Indonesian nickel mines have improved since the government reversed its ban on unprocessed ore exports in 2017, and ore production increased 71% year over year in 2018 to 606,000 t. Despite recent flooding, SPGMI expects Indonesian nickel ore production to reach 751,000 t this year.
Market Remains Difficult
SPGMI estimates that the nickel market will incur a refined-market deficit of 99,000 t this year, and that these deficits will increase through to 2021. Despite these apparently robust near-term fundamentals, SPGMI warns that the market remains oversupplied because of a drawdown of the large stocks of refined material (which continue to decline from the 21-week consumption level of end-2018).
Analysts expect some of this oversupply to be counterbalanced by a Chinese stimulus of the household sector. SPGMI expects 7.2% year-over-year growth in global stainless steel production, to approximately 53 Mt. Nevertheless, this robust growth is still insufficient to absorb the large amount of mined nickel output and the associated nickel pig iron (NPI) derived from the expansion at Indonesian mines.
Not all nickel is created equal, however. In fact, there are two main types of nickel; class-1 and class-2. The stainless steel that comprises the primary use for nickel comes primarily from class-2 nickel, which has an iron component. Class-2 nickel, however, lacks the purity for use as a component of batteries, and it is the electric vehicle revolution that is steadily increasing demand for lithium-ion batteries, and nickel is a key component of these batteries.
SPGMI expects class-two nickel, ferro-nickel and NPI to lead prices lower in the short term before battery consumption improves the demand outlook for end uses that only class-one nickel can satisfy.