An Insight into Nickel Futures and the Nickel Market Outlook

The demand for Nickel and other base metals has been quite volatile this year, with some significant price movements unrelated to usual supply-demand dynamics and instead stemming from the uncertainty of how the war in the Ukraine and the Chinese Covid may affect the global economy. The market has been disturbed by a significant short squeeze on the Nickel market in LME trading.

When Nickel futures prices were high, several traders took a short position in the market because they thought the price would fall and they would profit. But Nickel price really increased after Russia invaded Ukraine. As a result, firms had to pay exorbitant margin calls and, in some cases, purchase additional Nickel futures to cover their short positions, which made an already erratic but increasing trend in pricing even more pronounced.

LME Nickel price increased from $25,000 per tonne, which was already significantly higher than it had been for several years, to over $55,000 per tonne shortly after Russia's invasion of Ukraine, before momentarily falling to about $35,000 per tonne. However, the short squeeze was what actually sent Nickel prices through the ceiling, to roughly $48,000 per tonne before transactions shot up to $80,000–103,000 the next day.

As a result, the LME briefly stopped trading in the Nickel market, annulled some contracts, and put circuit breakers in place for Nickel trading. It is anticipated that the action will prevent similar issues from occurring in the future and will entice traders to return to the market without having to worry about such significant price surges and short squeezes.

Nickel Futures with EV Batteries

Richard Ferreira of the International Nickel Study Group (INSG) stated that, largely because of new investments in Indonesia and recovery in several other countries like the Philippines, the increase in Nickel supply could be greater than Nickel usage this year, despite the fact that the two major Nickel-consuming sectors - stainless steel and EV batteries - are anticipated to continue seeing increased demand.

Independent metals consultant Robin Bhar stated that while Nickel price is likely to remain at or above the pre-crisis $20,000 per tonne level throughout 2023 and 2024, there is still some potential for prices to climb higher for a brief period of time before correcting. Whether Russian Nickel is explicitly sanctioned, he claimed, would determine whether short-term firming would occur.

Wilkes said it's feasible that automakers will be tempted to employ other promising battery technologies if Nickel prices stay high and if the supply of Class 1 Nickel stays extremely constrained.

One more challenge is that some businesses are trying to engineer the cobalt out of the batteries they use for environmental, social, and governance (ESG) considerations. Nickel-based batteries may eventually only be found in high-end, luxurious EVs or in vehicles that will probably be driven farther and thus need the longer range between charges that Nickel-cobalt batteries have to offer over other battery types.

While lithium-ion phosphate batteries, which do not contain Nickel, might be utilized in more affordable, more basic EVs used for shorter distances.

Christian Georges, head of commodity research at Société Générale, noted that while Class 2 Nickel supply is adequate, the supply of Class 1 Nickel is a major concern. He explained that, given the anticipated growth of EVs, Class 1 Nickel supply needs to be increased by about 1 million tonnes per year by 2030.

Nickel use by stainless steel, which frequently uses Class 2 material, has remained consistent over time, according to Eglinton. Even with the battery industry's phenomenal expansion, this is still the case. However, it was pointed out that the stainless share, which now accounts for nearly 70% of all Nickel consumption, is not quite as large as it once was.

The Nickel Market Outlook

2022 is being characterized as a pivotal year for Nickel, with prices surging above anything the metal had ever seen. However, experts expressed confidence that even though there may be some volatility, there won't be the same boom/bust scenario as was seen in the first quarter, despite inventories being as low as they are on both the LME and the Shanghai Futures Exchange: "There should be much calmer conditions over the rest of the year with traders being more cautious and the LME imposing price limits to stop such wild swings."

According to other analysts, Nickel prices are now high, while being slightly lower than their previous top, which could encourage businesses to invest in greater supply, but it will take some time for that to become operational and have an impact on the market. 

What the future will hold in the near future is very unknown. This year, the market hasn't reacted logically, according to Geordie Wilkes, head of research for Sucden Financial, "even if fundamentally it is still strong, confidence needs to return before the Nickel market resumes trading like a normal market.”

Hallmark Mining Corporation is a Nickel mining manufacturer and mining interest in the Philippines with a commitment to sustainable and responsible mining; for more information visit our website.

Source: Fastmarkets.com