Andy Home: Nickel market is no longer worried about Russian supply

The market has shrugged off the suggestion by Russian President Vladimir Putin that Moscow could consider capping nickel exports in retaliation to Western sanctions.

The London Metal Exchange's (LME) 3-month price managed to make a slight bounce above the $16,000 per metric ton mark, but momentum is fading. It's a long way from the first Russian invasion of Ukraine in February 2022. The fear that sanctions could be imposed on metal produced by Russian giant Norilsk Nickel sparked a massive rally in 2022, which culminated in a complete meltdown of LME nickel.

Two and a half year is a very long time on the nickel market. There is no longer a severe shortage of nickel, but a huge surplus. Prices have dropped to the point where many high-cost operators are forced out of business.

Norilsk’s high-purity nickel refined is being rapidly replaced by a newer generation of Chinese and Indonesian manufacturers.

SCRAP...

In 2022, the loss of Russian metal could have caused a major supply chain crisis for Western consumers.

Norilsk Nickel was not only a major player, with an annual production of more than 200,000 tons but also its Class I refined Nickel was in high demand as a primary product to be converted into battery-grade Nickel Sulphate.

In the scramble to obtain high-purity units, LME stock levels had fallen steadily in the final months of 2021. By the end of February 20,22 the available tonnage was down to only 39,000 tons.

Indonesia is the largest nickel producer in the world, but its production is still mostly intermediate products like nickel pig iron which are better suited for stainless steel production rather than batteries.

...TO GLUTEN

The last two years have seen a dramatic change in the industry after Chinese producers took the leap to convert Indonesia's low-grade ore, into Class I refined Metal. The LME listed five new Chinese nickel brands as "good deliveries" in its contract. The first Indonesian brand has been approved since May.

LME inventories have risen rapidly since January, almost doubling to 123 726 tons. According to the LME’s latest monthly report, another 65,000 tonnes were in non-warranty storage at the end July.

The Russian component of the on-warrant LME stock has remained at 24,000 tons in this year while the Chinese-brand inventory has exploded from 6,400 tonnes at the end December to 42 738 tons at end August.

After the listing in May of the "DX - zwdx" trademark produced by PT CNGR Ding Xing New Energy, the first Indonesian metal began arriving at LME's warehouses. At the end of August, there were 3,186 tonnes of Indonesian metal registered.

The global exchange stock has risen to its highest level since September 20,21, and the daily inflows of LME warehouses are not expected to stop anytime soon.

PRODUCER PAINT

LME nickel prices have fallen to their lowest level since early 2021 due to the surplus of nickel.

Outside of Indonesia, the impact has been a growing list of price victims. BHP Group announced the suspension of operations at its Nickel West Mines in Australia in July. These mines were once hailed as Australia's battery metals hub. Koniambo, a New Caledonian producer, shut down its furnaces in the beginning of this month while talks with potential purchasers for Glencore’s stake continue to drag out. Sumitomo Corp., which owns the majority of Madagascar's Ambatovy Nickel Project, filed a plan to restructure its debt. Anglo American hired financial advisers to try and sell off its Brazilian nickel mines.

Since early 2022, the nickel market has undergone a radical transformation. Who will miss Russian nickel supply with all the metal washing happening around the world?

PERFECT SYMPTOM Norilsk has itself been caught in what CEO Vladimir Potanin called "a perfect storm", characterized by low prices, increased interest payments on debt instruments, and problems with cross-border payments.

The company's revenues fell by 22% in the first half 2024 to $5.6 billion, and its core earnings dropped 30% to $2.35billion.

The United States, Britain and the European Union have already imposed sanctions on its nickel. Norilsk responded by pivoting towards Asian markets. It is currently in discussions with various Chinese entities regarding the construction of a new nickel refining plant in China.

Does China even need more nickel today? For the first time in this century, the country has become a net nickel exporter during the first half of the year.

Putin's warning to cap exports was not just about nickel. The warnings about nickel, diamonds, and uranium were all mentioned with the caveat "we must not harm ourselves".

Nickel's response to the news indicates that Russia might want to consider other options to retaliate without harming its own producers.

The author is a columnist at

(source: Reuters)