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Industrial metals: Speculation is setting the nickel market on fire

09/04/2019 | 11:00am

The nickel market is experiencing a particularly hot summer, disrupted by an uncertain mining policy in Indonesia, the main ore exporting country.

This year, the metal price listed on the London Metal Exchange (LME) recorded by far the strongest increase in its sub-fund. Nickel actually increased by nearly 70%, far ahead of the timid 3% increase in lead and in sharp contrast to the trend for copper (-2.75%), aluminum (-7.8%) and zinc (-8.7%) since the beginning of the year.

However, a more exhaustive analysis of this dynamic would require us to take a step back - due to the fall in prices in 2018 - by around 28%. The peaks recorded in 2008 also seem inaccessible, at more than USD 30,000 per metric ton.

At the end of July, to the great surprise of operators, the Indonesian government announced a ban on its nickel ore exports from 2022, setting the nickel market on fire. Indonesia is the leading nickel producer, with nearly 560,000 tons of metal produced in 2018, according to data from the American Geological Institute, USGS. In this context, supply concerns have naturally intensified, especially since nickel stocks have tended to shrink in recent years and are struggling to recover. The situation has now taken a new turn as Indonesian authorities have announced that nickel ore exports will stop at the end of December, instead of the 2022 horizon initially mentioned. The battle between Indonesia and the end users of the sector is getting a little tougher, with Jakarta playing hard ball to achieve its goals: going up in the supply chain to capture more added value. The idea here remains to stop the progress of raw ore exports in order to refine a larger part of them on site. The stakes are high since a rapid withdrawal of the Indonesian supply could be accompanied by a deficit offer.

Stock dynamics managed and stored by the London Metal Exchange (LME) - source: Bloomberg

This potential embargo is a serious blow to Chinese industry, Jakarta being its main ferronickel supplier, ahead of New Caledonia. Despite the intensification of trade tensions with the United States, Chinese stainless steel production remains at record levels, implying that China will have to defend its nickel supplies tooth and nail in order to maintain this production rate.The influence of New Caledonia, another nickel producer in the Asia-Pacific region, is set to increase in the coming months. Eramet's subsidiary, the Nickel Mining Company (SLN), could allay Chinese fears through new supply contracts, which would be a boon for the New Caledonian subsidiary SLN, which has been in economic difficulty for years.

In this context, speculation has been increasing since the beginning of July, synonymous with massive purchases of futures contracts on a market already considered relatively volatile.

It is worth recalling that nickel plays a significant role in the sectors of future technologies and more particularly in electromobility. Like cobalt and lithium, nickel is used in some types of electric batteries. This would create further distortion between supply and demand in the event of Indonesia's withdrawal by the end of the year.

Jordan Dufee
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