Woodmac: Nickel to See Surplus in 2020, Lower Prices Ahead

It has been a volatile first half of the year for nickel, which has started to see its price rebound from lows hit in March on the back of impact from the coronavirus. 

In fact, nickel’s price performance has been a surprise on the upside year-to-date, according to Andrew Mitchell, Wood Mackenzie’s research director.

“This is not supported by fundamentals, (it’s) more sentiment and perception,” he said.

Nickel started the year trading at US$14,070 per tonne, and in March fell to US$11,055, its lowest level so far this year, when pandemic fears were hurting all markets. Prices made a comeback in Q2, and even though they are not at their highest level, they are up 22 percent from their low of US$13,518.

When looking at nickel’s fundamentals, Mitchell told the Investing News Network that the coronavirus has had a major impact on demand globally, and while China is now returning strongly, the rest of the world will take a few years to get back to 2019 levels.

“Stainless and superalloy being particularly affected, but also the electric vehicle (EV) sector,” he said.

Speaking about the use of nickel in batteries, Mitchell said one of the outcomes of COVID-19 could be an acceleration of the EV trend.

“One thing that may come out of the situation is that certainly ‘noises’ are being made about supporting companies via government grants; that focus will need to be on the cares of the younger generation, and in particular the environment,” he said. “EVs fall into this arena, and we could see ex-China a bit of an acceleration above what we currently forecast — but it will take time.”

Looking at the next six months, Mitchell is expecting very little to happen on the demand side.

“China is coming back strongly, but questions remain as to whether end-use demand will return as opposed to just first use,” he said.

Supply has been less impacted by the pandemic, according to the expert, as in most countries mining was deemed an important industry to maintain — although production was lost in Canada, the Philippines, New Caledonia and Madagascar, and to a lesser extent South Africa and Australia.

“The incredible growth in production in Indonesia, combined with the demand destruction of COVID-19, has moved our forecast from one of deficits and higher prices as of the end of 2019 to one of surplus and stagnating/lower prices,” Mitchell said.

Woodmac is expecting nickel prices to decline in the second half of the year from current levels, leaving the average for the year at around the US$12,300 to US$12,500 range.

For investors interested in the nickel space, Mitchell said it will be key to watch the ongoing development of capacity in Indonesia in the nickel pig iron (NPI) space.

Another key catalyst to pay attention to as the year comes to a close is the performance of the Indonesian high-pressure acid leach projects as they should get close to commencing production.

“Also, how China continues to raise its stainless production and how Chinese NPI production rates begin to be impacted by declining ore availability and how this will stabilize to production levels in 2021.”

Additionally, he pointed to an ongoing trend in the battery space — the apparent increase in lithium–iron–phosphate battery use in China, which seems to have had a recent resurgence.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.