On 23 March this year, as the UK population awoke to the first of what would turn out to be more than 100 days of initial lockdown in the wake of Covid-19, S&P Global Market Intelligence published a report entitled ‘Nickel CBS March 2020 – Coronavirus to Derail 2020 Nickel Bull Market Story’.

In it, commodities analyst Jason Sappor explained why S&P expected the negative macroeconomic impact of the novel coronavirus outbreak to derail the 2020 nickel bull market story that had been the expected result of the Indonesian Government’s nickel ore export ban that began on 1 January.

“The massive response by central banks and governments to counter the pandemic’s impacts on global economic growth – including the recent emergency interest rate cuts and quantitative easing packages announced by the US Federal Reserve and the Bank of England – has failed to reduce risk aversion among investors around the implications of the pandemic,” Sappor wrote back in March.

“Other bearish factors, such as the crude oil price collapsing to an 18-year low and high London Metal Exchange (LME) nickel stocks, have contributed to the LME three-month nickel price dropping by 11.4% month over month 19 March to US$11,225/t, the lowest price since June 2019,” he added.

Trading Economics reports that the nickel price has decreased $121/mt or 0.87% since the beginning of 2020, according to trading on a contract for difference that tracks the benchmark market for the commodity. So, more than four months on from the S&P report, have the metal’s fortunes changed?

The impact of Covid-19 on stainless steel production in China

The world’s primary producers of nickel are the Philippines, Russia, Canada, New Caledonia, Australia, Brazil, Cuba, Colombia, and Indonesia. As the world’s number one producer, and a major supplier of the metal to China’s stainless steel industry, Indonesia responded to the risk of increasing demand by tightening local supply through a ban  on the export of raw nickel ores, a prohibition that remains in place.

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According to GlobalData analyst David Kurtz, the ban – which affects around 218,000 tonnes of unprocessed nickel, roughly 10% of global demand – was intended to produce value-added nickel products, stimulate domestic processing of ore, and make Indonesia a hub for EV production.

In response, Chinese manufacturers began building up nickel inventories, which had the effect of pushing up the price of the commodity to more than $16,000 per tonne at the end of September 2019, a jump of more than 60% from January that year. When the Indonesia ban was officially announced, nickel prices increased by 8.8% to reach a peak of $18,620 per tonne – the highest mark since 2014.

Then came Covid-19. With stainless steel production significantly curtailed by lockdown measures in China, total stocks in the country increased by 50% in the first two months of 2020, to almost 3Mt.

“A V-shape recovery in China is not expected and recovery in the rest of the world is forecast to be weak,” said Natalie Scott-Gray, London-based senior metals demand analyst at INTL FCStone in June, during an online forum organised by the Bureau of International Recycling, adding that year-on-year production of stainless steel in China decreased by 12% in Q1 and was likely to be down 11% in Q2.

Electric dreams: nickel demand for EV batteries

Nickel is predominantly used in the production of stainless steel and other alloys, and consequently is found in everything from smartphones and medical equipment and electric vehicle (EV) batteries.

GlobalData expects the number of EVs to increase from 1.6 million in 2018 to 6.8 million in 2023, while demand for nickel for use in lithium-ion batteries is forecast to quadruple over this period.

“Nickel output is expected to decline by 20–25% amid Covid-19 and the Indonesian nickel ore export ban,” Frost & Sullivan minerals & mining consultant Harish Krishnamoorthy said.

“Countries like Australia, the Philippines, and Canada are stepping into the market with new green field projects, but one has to doubt it can keep pace with the expected nickel usage, especially in NMC (nickel manganese cobalt) lithium batteries, which is expected to increase at least two-fold by 2030.”

Scott-Gray pointed out that the end use of nickel in batteries still only makes up 4% of the current total market and that despite aggressive projections for nickel demand from the EV sector, the stainless steel industry will continue to be the main nickel consumer and price driver in the short to medium-term, with end-use forecast to be 46% for stainless steel and 37% for batteries by 2030.

Green machines: sustainability and oversupply

There is also an environmental dimension to the subject linked to the energy-intensive production of ‘nickel pig iron’, a lower-grade ferronickel invented in China as a more cost-effective alternative to pure nickel for stainless steel production and other processes.

Commenting on a conference call in which Tesla CEO Elon Musk outlined the importance of nickel, and why it needs to be mined sustainably, Mark Selby, CEO of emerging mining company Canada Nickel, told Timmins Daily Press: “… One hundred per cent of the supply growth in nickel over the last five years has come from nickel pig iron plants in Indonesia.”

“The issue with ferronickel and nickel pig iron is that it is a very energy intensive business. It uses a huge amount of electricity, and if you need to burn coal to make that electricity, which is what they do in Indonesia, they literally use a total, throughout the whole process, of about 25–30t of coal per tonne of nickel.

“Carbon-wise, that works out to 90t of C02 per tonne of nickel,” he continued. “So all of a sudden, if you take your 50k of nickel, and if that is where it comes from, and you strap that onto a Tesla, you are also bolting on close to four tonnes of CO2, which I am not sure is what Elon had in mind.”

In the short to medium-term then, nickel prices look likely to continue their steady recovery from the negative impact of Covid-19, driven by demand for stainless steel production and EV batteries.

In Indonesia, the government recently rejected a proposal by the nickel miners’ association to allow exports of nickel ore in order to cushion the impact on processed nickel exports by measures to control Covid-19, meaning domestic production will likely tip the global primary market into oversupply.

“The Indonesian nickel ore export ban was originally expected to drive nickel prices higher in 2020 by the market,” wrote S&P’s Jason Sappor on 21 July. “However, the demand destruction caused by the Covid-19 pandemic has lowered prices by 7% since the start of the year.

“In addition, we expect Indonesia’s primary nickel production to expand by 21% year over year to 575,000t in 2020. The combination will drive the global primary nickel market to a 100,000t surplus this year – the market’s first primary surplus since 2015 – from a 33,000t deficit in 2019.”