Mon. Jan 24th, 2022

Nickel joined a larger rally across commodity markets and climbed to its highest level in a decade as inventory declined and large automakers increased electric vehicle production.

The metal, which is used in more powerful EV batteries, rose as much as 4 percent on Wednesday to a 10-year high of $ 22,745 per tonne, as inventory in warehouses approved by the London Metal Exchange for the 51st consecutive day has dropped. In China, nickel stocks in official warehouses are close to a record low of just 4,859 tonnes.

“With China’s policy response accumulating steam in a moment of severe depletion, micro- and macro-conditions are beginning to coincide, driving a repricing of metals in the direction of scarcity,” said Goldman Sachs analyst Nicholas Snowdon.

These remarks were echoed by Jeremy Weir, CEO of Trafigura, one of the world’s largest commodity traders. Speaking at the Future Minerals Forum in Saudi Arabia, he said stocks around the world are at critical levels and prices have “started to move to reflect that”.

“We are starting to see consumers wake up and acknowledge the problems that exist,” he said.

Nickel has picked up 12 percent in the past month due to rising demand for EV – one in four new car sales in the UK in December was a battery-powered vehicle – and a series of announcements about new nickel mining projects.

The metal’s price increase came as copper, the world’s most important industrial metal, traded for more than $ 10,000 a tonne for the first time since October, indicating that China would provide more stimulus to support the economy.

At the same time, oil reached a two-month high of $ 85 a barrel as concerns about an impact on demand for the Omicron coronavirus variant continued to fade and US crude stocks fell to their lowest levels since October 2018. Overall, the Bloomberg Commodity Index is up 5 percent this year.

Line graph of LME 3-month price ($ per ton) showing that nickel reached its highest price in 10 years

Earlier this week, BHP, the world’s largest miner, threw its weight backwards a major nickel project in Tanzania, while automaker Tesla signed its first U.S. supply agreement with an agreement to buy 75,000 tons of the metal from the Tamarack depot in Minnesota.

“The recent plethora of announcements about nickel development projects testify to the confidence in future market fundamentals on the backs of stainless steel and battery demand dual engines,” said Colin Hamilton, analyst at BMO Capital Markets.

According to the International Energy Agency, demand for nickel will have to grow 19-fold by 2040 if the world is to meet the targets of the Paris Agreement on Climate Change.

However, most of the increase in supply this decade is expected to come from Indonesia, a market that is overwhelmingly powered by coal-fired electricity where Chinese companies are building nickel processing projects.

As a result, Elon Musk, Tesla boss concern expressed on future nickel supply, promising giant contracts over a long period of time for companies that can exploit the metal in a sustainable and environmentally sensitive way.

Although there is a lot of excitement about the increasing demand for nickel from car manufacturers, more than two thirds of world production is still focused on the production of stainless steel.

As demand for stainless steel picked up after the worst of the pandemic-induced shutdown in 2020, nickel recorded a supply-to-demand shortfall of about 180,000 tons last year – equivalent to about 6 percent of its total market size.

To prevent a further withdrawal of stock in 2022, Hamilton said the nickel supply would have to increase by 200,000 tonnes. Such an increase is by no means impossible, Hamilton said, but it does involve “a lot going right”.

That view was reiterated by Snowdon, who said increased nickel supply from Indonesia would not be enough to prevent further depletion of supplies.

“The much tighter starting point for the market this year coupled with strong EV trends ahead means it is probably no longer enough to generate a total move back to a clear surplus,” Snowdon said. It has a 12-month target price of $ 24,000 for nickel – an increase of about 6 percent from the metal’s current level.

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