Nickel prices continued their ascent this week, reaching above US$14,000/t on Wednesday. Prices have risen 17% in July according to Fastmarkets.
There are several factors underpinning recent price rises, none of which are new. Firstly, prices were likely buoyed by concerns that Indonesia will resume an export ban on ore in 2022. Such concerns resurfaced last week and were brought about largely by media speculation. In reality, the possibility of a resumption in 2022 has been on the cards since 2017, since the relaxation of the export ban announced then was only effective until January 2022. Secondly, reports suggest that investors are taking more of an interest in nickel. LME stocks continue to be drawn down, as they have been since 2015, although the intensity of the draw down has increased since 2018. Thirdly, the outlook for demand remains positive, underpinned mostly by stainless steel, but with demand from lithium-ion batteries also set to change the future dynamics of the market.
Roskill forecasts primary nickel consumption to increase at a rate of 4.4%py over the next decade. Thus, a substantial amount of new nickel units will eventually be required to meet demand. Importantly, new projects will be required producing intermediates for use in Class I nickel and salts as well as substantial new volumes of Class II nickel in the form of NPI or ferronickel.
New units of finished nickel could be added relatively economically in the form of NPI, at an estimated incentive price of around US$14,000/t Ni, assuming a 5% capital charge (likely funded by Chinese investment). Hydrometallurgical production of MHP or MSP, however, would likely require substantially higher prices, in the range of US$16,000-17,000/t Ni, or well into the US$20,000-US$30,000/t Ni if assuming a higher cost of capital.
As such, despite the current hype, nickel prices remain well below recent highs, and still have a long way to go to reach required incentive price levels. Nonetheless, they appear to be on their way.