The future for nickel: slow and steady or battery boom?
Higher than expected supply and a drop-off in demand have conspired to keep the nickel market weak in 2015, but could a boom in electric vehicle output signal things are about to change? Elly Earls meets IHS’s Jason Kaplan and Wood Mackenzie’s Sean Mulshaw to find out.
It has been a remarkably weak year for the nickel market so far, a combination of the Indonesian bans on unprocessed nickel exports not having the impact on supply that was initially expected and a radical drop-off in demand for stainless steel. But what does the future hold for the metal? Will growing demand for electric cars - which use nickel batteries - result in a boom in demand, as some analysts have predicted, or is the already struggling market simply set for more of the same?
Last year was something of a rollercoaster for nickel, with Indonesia's export ban initially pushing prices up in anticipation of supply shortages, but the market quickly weakening again when it became clear there was, in reality, no supply crisis on the horizon.
"Nickel prices increased not long after the ban was introduced because it was expected to have a detrimental impact on Chinese and, subsequently, world nickel supply. But, when it became clear that it would take longer for ore stocks in China to become exhausted, nickel prices went back down again. Since then, nickel prices have remained on an underlying downward course," explains Sean Mulshaw, principal analyst for nickel markets research at Wood Mackenzie.
On May 19, the metal saw its biggest one-day drop in a year after inventories jumped to a record high.
Radical drop-off in demand
Yet for Jason Kaplan, senior manager and analyst at IHS's Pricing and Purchasing Service, the weakness in the nickel market has been more about demand than over-stocked London Metal Exchange (LME) warehouses.
"The weakness in the nickel market is not really on the supply side; it's about demand, which we've seen radically drop off," he says. "Two thirds of nickel goes into stainless steel and we've seen a very weak market for that, really tied to the lacklustre construction market in China as well as demand from oil and gas applications. With the oil and gas price plummeting, a lot of developments have been put on hold or mothballed temporarily, so [that source of demand has] sort of just gone away virtually just overnight."
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In Europe, too, demand for stainless steel has dropped. "De-stocking in the stainless steel supply chain started towards the end of 2014 continuing into Q1 this year, and as a result stainless production rates have been constrained with, for example, estimated Q1/15 stainless melt production in Europe falling around 7% compared with Q1 in 2014," Mulshaw notes.
But will demand remain, as Kaplan describes it, 'remarkably weak'? For the rest of the year, he certainly sees no change to the situation. "We're not forecasting any improvement in [the Chinese construction market] and the price is not going to change much over the year. Over 2014, the average price was $16,700/mt and over 2015, we're forecasting it to be $15,400".
Electric car batteries: nickel's saviour?
Yet, in the longer term, some analysts think increased demand for nickel-containing car batteries could aid a recovery in the market for the silver-white metal. Indeed according to Russia's largest producer of nickel, Norilsk Nickel, demand for nickel from the auto industry is set to rise as much as threefold in five years thanks to increased output of electric and hybrid cars, which generally use either lithium-ion batteries containing a small amount of nickel (Tesla's factory in Reno, for example, is designed to more than double the world's supply of lithium-ion batteries) or nickel-metal hydride batteries.
Specifically, Anton Berlin, Norilsk's head of strategic marketing, said that the use of nickel in car batteries could rise to more than 100,000 metric tons a year by the end of the decade from 30,000 tons in 2014 and that global electric car output is set to triple to about 700,000 cars a year by 2020, with hybrids like the Toyota Prius, which runs on nickel-metal hydride batteries, doubling to 5 million a year.
Kevin Tynan, an analyst for Bloomberg Intelligence, also said that nickel-metal hydride batteries could be used for "a much larger pool of vehicles" than they currently are, as, compared to lithium-ion battery powered vehicles, they appear to demonstrate "the best balance of cost and fuel efficiency."
Kaplan, however, thinks that while demand for green car batteries is undoubtedly set to rise, this trend is unlikely to significantly impact the nickel market. This is for two key reasons: firstly, batteries are a fairly small component of nickel demand and he doesn't see this changing; and secondly, IHS is forecasting that lithium-ion batteries, which do contain nickel, but considerably less than nickel-metal hydride batteries, will be the dominant battery type moving forward.
"Currently, our forecast for 2015 for plug-in electric vehicles and hybrid electric vehicles is that 54.9% have lithium-ion or lithium-polymer batteries, and 42.2% have nickel-metal hydride batteries. And by 2020, we will see lithium ion accounting for 85.5% and nickel-metal hydride about 10.5%. Of course, the whole market is going to be very much bigger but we definitely see the dominant technology being lithium ion, with nickel-metal hydride shrinking as a percentage," he says.
The future: 'slow and steady'
So how will the nickel market progress over the next few years - and why? According to Kaplan, it's the supply rather than the demand side of the fundamentals equation that is set to look "a little bit interesting".
"Companies like Eramet (a French mining and metals group) reported quite large losses on their nickel facilities, so we could potentially get some consolidation, which would help the supply side of the fundamentals equation," he notes.
Meanwhile, Mulshaw is keeping a keen eye on the situation in Indonesia where it's been reported that 11 new nickel smelters are to be built over the next two years at a cost of $1.4 billion. "[A key factor likely to influence the market] is whether or not the collection of nickel projects in Indonesia that are intended to replace lost nickel pig iron production in China, actually come on stream any time soon," he says. "Reliable information on their current status is sporadic but our research indicates that most are unlikely to start before 2017."
Overall, prices will rise - albeit slowly, according to Kaplan. "We see a very steady market going forward," he concludes. "We do see it improving but not even getting above $20,000/mt by 2018. In fact, by 2018 we think the price will be about £19,200/mt as an average over the year. Of course, there could be shocks - the market seems to react very quickly to any kind of news - but as an average it will be a slow, steady increase as the supply is disciplined and comes more in line with improving demand fundamentals."