*On-warrant nickel inventories in LME-registered warehouses have fallen to 62,304 ton
*Tight supply has pushed cash nickel’s premium over the three-month LME to $194 a ton
As the global automotive industry picks up the pace of electrification, there will be a corresponding increase in the demand for nickel, which is a key ingredient for automotive batteries. London Metal Exchange nickel neared seven-year highs, boosted by low inventories that pointed to tight supply and China’s efforts to support its economy which bolstered the outlook for demand. Inflation expectations have been rising on the backs of higher metal prices.
Nickel now looks to be the new game in town with stocks falling daily. Benchmark nickel is up about 25% this year, on the LME was at $19967.5 a ton on Friday after reaching $20737.5, just below last month’s high of $21,425. On-warrant nickel inventories in LME-registered warehouses have fallen to 62,304 ton from more than 200,000 ton in April. At this juncture, watch the critical cash three-month gap, which is already backwardation and has the scope to widen further.
Tight supply has pushed cash nickel’s premium over the three-month LME contract to $194 a ton, its highest since 2019. Tightening supply is primarily due to Vale SA, one of the world's top nickel producers, slashing its production outlook for the year due to a strike at its Canadian mine. MMC Norilsk Nickel PJSC, the world's largest refined nickel producer, reported declining output in the third quarter.
The second-largest metal producer, the Philippines, said output this year would be 10% less than the annual average due to torrential rains and declining vessels for transport. Indonesia possesses the world’s highest volume of nickel reserves (which refer to the total availability of nickel in the country), at 21 million ton, representing more than 20% of the global total. With regards to nickel production (which refers to the actual amount of nickel that is mined), on the other hand, Indonesia accounts for more than 30% of the global total.
The SHFE/LME nickel price ratio surged before falling last week. The low Chinas inventory early in the week combined with the high premiums in the domestic spot market improved the SHFE/LME nickel price ratio. But the price ratio returned to the previous level with the arriving shipments of domestic nickel briquette and price cuts by Jinchuan Group. The current price ratio still does not support a large inflow of imported cargoes.
Analysts expects annual NEV (new energy vehicle) sales in China to surpass 3.3 million units this year (including both heavy and light vehicles), representing an over 140% YoY growth. Likewise, cumulative EV battery installation in China for the January-October period reached 107.5 GWh, a 168.1% YoY increase, while automotive NCM (Lithium Nickel Manganese Cobalt oxide) battery installation reached 54.1 GWh, accounting for 50.3% of the total EV battery installation.
(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 29-11-2021