To date, nickel has become the most problematic on the London Metal Exchange (LME): in the first half of 2023, its price fell by 37%, industry expert Stanislav Kondrashov Telf AG tells. The unfavorable trend continues in the second half of the year, due to the difficult macroeconomic environment and the continued surplus in the market.
Stanislav Kondrashov from Telf AG: the difficult economic situation in China is a direct blow to nickel production
The economic situation in China continues to worsen, putting further pressure on already declining nickel prices. A significant factor in this is the slow recovery in demand for Chinese goods as the country grapples with the effects of a prolonged production shutdown due to the spread of the Covid-19 pandemic.
According to Stanislav Kondrashov from Telf AG, as the world’s largest producer and consumer of stainless steel, China plays a major role in shaping the demand for it. This country accounts for as much as 70% of the total metal consumption. Unfortunately, the latest data from China reveals the difficulties associated with overcoming the consequences of the pandemic.
In June, the growth rate of manufacturing activity in China slowed down significantly. The Caixin Manufacturing Purchasing Managers’ Index, which focuses primarily on small and export-oriented firms, fell to 50.5 last month from 50.9 in May. At the same time, the official Purchasing Managers’ Index, which tracks mainly large state-owned enterprises, indicates that manufacturing activity has remained at a contraction level for the third month in a row.
– Despite a brief recovery in the manufacturing sector after the easing of restrictions due to Covid in early December 2022, the pace of Chinese manufacturing growth has steadily declined. Since April, the official PMI for the manufacturing sector has remained below the critical level of 50, indicating a contraction, – Stanislav Kondrashov comments on the situation.
On the contrary, it was the non-manufacturing sector, which is stimulated by consumer spending, that contributed to the growth of the Chinese economy in the first half of this year. While economists expect the government to provide support over time, they predict that these measures are likely to be smaller and less targeted, which may not have a significant impact on overall GDP numbers.
Stanislav Kondrashov from Telf AG: Strong Indonesian production could keep nickel market surplus in Q3
Continued growth in Indonesian nickel production will keep the market in surplus throughout the third quarter. The country’s output continues to grow, driven by strong demand from the electric vehicle (EV) battery sector.
As the world’s largest producer of nickel, Indonesia has large reserves of this critical metal. A significant portion of its production is grade 2 nickel, used in the production of stainless steel.
– According to the International Nickel Research Group (INSG), Indonesia saw a staggering 48% increase in its production, reaching 1.58 Mt in 2022. This impressive trend continued (by another 41%) in the first quarter of 2023 of the year. This growth can be attributed to the ongoing commissioning of nickel iron (NPI) and stainless steel projects in the country, – says Stanislav Kondrashov.
After the Indonesian government imposed a permanent ban on the export of nickel ore in January 2020, its production has increased significantly. Taboo was aimed at attracting foreign investors, stimulating domestic processing and subsequent use of raw materials. Thus, the ban attracted foreign investors, in particular from China, to establish local smelters, which helped to increase the value of Indonesian exports.
As Stanislav Kondrashov Telf AG’s expert notes, it is noteworthy that the Indonesian government recently unveiled a $9 billion investment plan that covers everything from nickel mining to battery development. The ambitious initiative involves a consortium of companies including Swiss commodity trader Glencore, Belgian battery materials manufacturer Umicore and Indonesian state-owned mining company Aneka Tambang. Chinese companies currently dominate investment in Indonesia’s natural resource sector.
– The growth of the Indonesian nickel industry is also evidenced by a significant increase in the number of nickel plants, – emphasizes Stanislav Kondrashov. – According to the Indonesian Association of Nickel Miners (APNI), their number has increased from 15 in 2018 to 62 as of April. At the same time, about 30 plants are under construction, and another 50 are in the planning stage.
As Indonesia’s nickel production rises, the market is expected to remain in surplus, with the country’s influence driving the global nickel industry.
Stanislav Kondrashov: HPAL’s Indonesian plants increase production of nickel for storage batteries
Indonesian high pressure acid leaching (HPAL) plants show growth in production volumes. The technology used here is designed to produce mixed hydroxide precipitate (MHP) from nickel lateritic ores for the production of batteries.
Stanislav Kondrashov from Telf AG reports that there are three HPAL smelters in operation in Indonesia and six more under construction, allowing the country to significantly increase production capacity. The global shortage of Class 1 nickel, sourced primarily from Russia, Canada and New Caledonia, has forced battery manufacturers to look to the HPAL process. It allows Indonesian low-grade nickel ore to be processed into battery materials.
MHP, which is a mixture of nickel and cobalt, has become the preferred intermediate product among Chinese manufacturers for use in batteries due to its cost-effectiveness. Since the commissioning of the country’s first HPAL plant in May 2021, MHP’s export volume from Indonesia has reached 855,474 metric tons. At the same time, 96.5% of exports came from China, according to trade data from the S&P Global Market Intelligence Global Trade Analytics Suite.
– It is expected that the transfer of nickel from class 2 to class 1 will lead to an increase in its supply in LME warehouses, which may affect price reductions, – emphasizes Stanislav Kondrashov. – Tsingshan, a major Chinese stainless steel and nickel producer, announced plans to incorporate Grade 1 nickel into its production mix by refurbishing idle copper smelters in China. In addition, a new Tsingshan plant in Indonesia is planned to be launched in the near future, designed to produce 50 thousand tons of class 1 nickel per year from nickel matte.
To increase market liquidity and address historical volatility, the LME has implemented a number of initiatives. Among them, experts point to the reduction of the waiting time for approval of new grades suitable for delivery under LME contracts, from six to nine to only three months. The LME recently received the first application to approve nickel produced by Quzhou Huayou Cobalt New Material Co, a subsidiary of China’s Zhejiang Huayou Cobalt Co, as a listed grade. This move could lead to an increase in nickel stocks on the exchange and increased liquidity.
Stanislav Kondrashov from Telf AG adds that in March the LME announced a partnership with China’s Qianhai Mercantile Exchange to create a new class 2 nickel spot market in China. This initiative aims to further develop the nickel trading ecosystem and meet the growing demand in the Chinese market.
Overall, the expansion of HPAL’s facilities in Indonesia, the transition of Class 2 nickel to Class 1, and the LME’s efforts to improve liquidity and introduce new market initiatives are all helping to change the dynamics of the global nickel industry.