(Repeats Monday's column with no changes to text. The opinions
expressed here are those of the author, a columnist for Reuters)
By Andy Home
LONDON, Dec 6 (Reuters) - London Metal Exchange (LME) nickel
stocks have been falling relentlessly since April of this year.
Exchange inventory has slumped to 110,688 tonnes from
264,606 tonnes over the last six months with almost half of what
is left cancelled in preparation for physical load-out.
LME time-spreads have been tight since the middle of
October. The cash premium <CMNI0-3> hit $190 per tonne last
month and was still a wide $141 at Friday's close.
Some of what is leaving the LME's warehousing system is
heading for China.
The country's imports of refined nickel have accelerated
appreciably since April with the cumulative January-October
tally of 208,000 tonnes up 96% on the same period last year.
China's recent import appetite is now stretching
availability in a market already caught out by the strength of
demand this year.
CHINA'S IMPORT APPETITE GROWS
China's imports of refined nickel were 35,500 and 34,500
tonnes in September and October respectively, the highest
monthly tallies since December 2017.
Cumulative imports of 208,000 tonnes over the first 10
months of this year are almost double last year's equivalent
level and the strongest since 2016.
China had been importing less refined nickel in recent years
as it stepped up purchases of raw materials, particularly
Indonesian nickel pig iron destined for the stainless steel
sector.
Inbound shipments of such raw materials remain robust. Those
from Indonesia were up 21% year-on-year over January-October.
Imports of intermediate nickel products were up by 29% and those
of nickel ore and concentrates by 16%.
However, the domestic market for nickel in refined form has
been tight, which has fed into a rolling squeeze https://www.reuters.com/article/metals-nickel-ahome-idUKL8N2QB2LP
on the Shanghai Futures Exchange (ShFE).
Shanghai exchange inventory has remained extremely low
throughout 2021 and closed last week at just 5,563 tonnes, any
sustained rebuild hindered by the limited number of non-Chinese
brands deliverable against the contract.
Those from Russian producer Norilsk are deliverable and it's
noticeable that imports from Russia have surged to a combined
17,300 tonnes in September and October, more than total arrivals
in the first eight months of the year.
Domestic availability of refined nickel has been constrained
this year by a maintenance closure at dominant producer Jinchuan
Group and by Jilin Jien's switch from producing refined metal to
nickel sulphate.
More recently, energy-saving measures across multiple
Chinese provinces have hit power-hungry nickel pig iron
producers, creating added displacement demand for nickel in
refined form.
DEMAND BOOM
While Chinese supply has struggled, domestic demand has
boomed this year, as it has everywhere else.
Most nickel still gets fed into stainless steel furnaces and
global stainless production has been resurgent in 2021,
registering year-on-year growth of 25% in the first half,
according to the International Stainless Steel Forum.
Electric vehicle batteries are still a small part of the
nickel usage picture but a fast-growing one.
Demand for battery-grade nickel in China, the world's
largest EV battery supplier, is showing up in super-charged
imports of nickel sulphate. January-October arrivals totalled
35,900 tonnes, up from just 4,800 tonnes in the same 10-month
period of 2020.
The combined strength of old and new nickel-consuming
industries has defied expectations.
When the International Nickel Study Group (INSG) held its
October 2020 meeting, it expected global demand to rise by 9%
this year.
When it met in April 2021, it lifted that demand growth
forecast to 12%. The most recent forecast from the Group's
meeting in October was higher still at 16%.
These are super-charged growth figures, even allowing for
the economic snapback from COVID-19 lockdowns last year.
They have also translated into a much wider-than-expected
gap with supply, which has suffered multiple hits in China and
the rest of the world.
WIDENING THE GAP
The INSG forecast a 2021 supply-demand surplus of 68,000
tonnes in October last year.
Fast forward to October this year and its most recent
assessment is for a 134,000-tonne supply shortfall in 2021.
Even that drastic revision may need a few further tweaks.
The Group's latest monthly update for September suggests supply
fell short of demand to the tune of 175,000 tonnes https://www.reuters.com/markets/asia/global-nickel-market-deficit-shrinks-sept-5200-tonnes-insg-2021-11-18
in the first 9 months of the year.
The INSG is forecasting a return to a modest, 76,000-tonne
surplus next year as the stainless demand surge abates and
nickel supply recovers, particularly in Indonesia, where
producers are rapidly expanding capacity.
However, many of them are going down innovative technical
paths in the collective attempt to pivot towards the type of
product used for battery manufacture.
The risk of supply underperforming next year is one of the
reasons analysts at JPMorgan are expecting deficit conditions to
persist through at least the first half of 2022.
JPMorgan, indeed, has revised "materially higher" its nickel
price forecasts to $23,000 per tonne in the first quarter of
next year and $22,000 in the second. ("Base and Precious Metals
2022 Outlook", Nov. 29, 2021)
The LME three-month nickel price is currently
trading at $19,800 after peaking in October at $21,425 per
tonne, its highest trading level since 2014.
As ever in the nickel market, everything will depend on what
happens in Indonesia, where the next wave of supply is building.
Before it arrives, however, nickel looks set to remain a
tight market with the flow of metal into China transferring the
tightness from Shanghai to London.
(Editing by Emelia Sithole-Matarise)