Nickel prices spiked this week, with the LME three-month nickel price reaching a high of US$16,690/t amid continued market speculation over future Indonesian supply.
In a recent article, Roskill documented the rise in nickel prices through July, reaching above US$14,000/t. Price volatility is nothing new for the nickel market, however, the speed of the current price rise caught many in the industry by surprise.
The main cause of the dramatic price rise can be attributed to further speculation and chatter surrounding a future Indonesian export ban. As reported previously, 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. Indonesian nickel supply—in the form of ore and NPI—is, and will remain, critical for maintaining an overall nickel market balance.
Indonesia’s tough stance on raw material exports has paid dividends in relation to investment in added value nickel production through NPI, but China’s tightening environmental regulations, the uncertainty of another export ban, and a focus on nickel sulphate, could catalyse a new wave of projects in the country—several of which are in feasibility mode. China’s Chengtun Mining this week announced plans to invest US$145M in an Indonesian nickel smelter in the Weda Bay Industrial Park, Halmahera province. Chengtun Mining will assume a 35.75% stake in the project company Youshan Nickel. Youshan Nickel will construct the nickel matte smelter with capacity of 43.6kty (34kty Ni), following similar investment by Tsingshan.
Even at the current price, projects outside of Indonesia are still short of an incentive level for economic viability which Roskill puts at over US$20,000/t but, in reality, needs to be higher. If the price continues to creep up, however, shuttered or lower-cost capacity may be incentivised to re-open, even though Roskill considers that additional nickel units aren’t necessary in the immediate future to balance demand growth, given that on and off-market stock levels and output are sufficient to meet short-term Class I (including nickel sulphate) requirements. A nickel price spike now may not reflect the reality of the market balance, but if it continues and is sustained, may be a blessing given the timeframe to production of new supply to meet higher demand—led by EVs—in the future.