News on a potential breakthrough in the supply of nickel matte from Tsingshan has dampened nickel prices. Rather than a step-change in nickel market supply, strategists at Capital Economics reckon that this development will simply act as a structural drag on the nickel price.

Key quotes

“Concerns about a lack of nickel supply were partly alleviated after reports emerged that China’s Tsingshan Holding Group would supply nickel matte, an intermediate product that can be converted into high-grade nickel, to two Chinese electric vehicle (EV) battery material suppliers. We think that this recent development is going to act as a headwind on nickel prices.”

“The supply of ‘Class 1’ LME-grade nickel should rise. After all, Tsingshan’s plans to process nickel pig iron (NPI) into nickel matte (which can then be refined into battery nickel) means that there is an alternative way to obtain LME-grade metal. To be clear, the process of creating nickel matte from NPI is by no means new, but it is energy-intensive and polluting. Moreover, production costs are higher and it has only become economically feasible thanks to the recent rise in nickel prices.”

“We forecast that the nickel market will be in surplus again in 2021. Although there has been much fanfare regarding nickel’s use in EV batteries, their share of global nickel demand is still low relative to stainless steel and other uses. We suspect that as China’s economy comes off the boil in H2 2021, demand will fall and that the nickel price will ease back further by end-year.”

 

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