Nickel sup­ply rush to cool rally be­fore bat­ter­ies boost

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FOR­GET elec­tric ve­hi­cles for now. Nickel must first con­tend with a new wave of sup­ply from In­done­sia and the Philip­pines, as well as a Chi­nese stain­less steel mar­ket that’s at risk of slow­ing af­ter a two-year boom. The metal climbed to the high­est level this month since June 2015, lifted by pre­dic­tions of a jump in de­mand from elec­tric ve­hi­cles. But prices have since re­treated in­vestors re­set their fo­cus on more im­me­di­ate con­cerns.

FOR­GET elec­tric ve­hi­cles for now. Nickel must first con­tend with a new wave of sup­ply from In­done­sia and the Philip­pines, as well as a Chi­nese stain­less steel mar­ket that’s at risk of slow­ing af­ter a two-year boom.

The metal climbed to the high­est level this month since June 2015, lifted by pre­dic­tions of a jump in de­mand from elec­tric ve­hi­cles (EV). But prices have since re­treated as the boost from new en­ergy au­tos lies sev­eral years in the fu­ture and in­vestors re­set their fo­cus on more im­me­di­ate con­cerns. Bat­ter­ies will rep­re­sent only 3% of de­mand this year, com­pared with the two- thirds used in stain­less steel, ac­cord­ing to the In­ter­na­tional Nickel Study Group.

“The mar­ket has been get­ting too ex­cited, too soon be­cause of the whole EV the­matic — we think that has been mis­placed,” said Lach­lan Shaw, an an­a­lyst at UBS Group AG in Mel­bourne. “It’s only re­ally 12-18 months hence that we will have an idea of what’s re­ally hap­pen­ing in the bat­tery space, and by 2020 it could be a big part of de­mand growth. In the short term, nickel will re­main a con­ven­tional stain­less steel trade.”

That may spell trou­ble for a com­mod­ity that’s al­ready this decade’s worst per­former on the Lon­don Metal Ex­change. Nickel has ben­e­fited re­cently from strong stain­less steel de­mand in China, es­pe­cially in the third quar­ter, and rel­a­tively re­strained sup­ply from In­done­sia. But those driv­ers are weak­en­ing, with the highly cycli­cal stain­less mar­ket soften­ing, and sup­plies of nickel set to rise from In­done­sia and the Philip­pines, ac­cord­ing to Mac­quarie Group Ltd.

Chi­nese out­put of nickel pig iron ( NPI) could re­bound to 500,000 met­ric tons in 2018 in terms of metal con­tent, ac­cord­ing to Mac­quarie, from 407,000 tons this year, af­ter In­done­sia re­laxed a ban on ship­ping raw ore. Mean­while, In­done­sia’s own NPI pro­duc­tion is ex­pand­ing, po­ten­tially reach­ing 240,000 tons next year, up from 90,000 tons in 2016, the bank’s data show. Philip­pine mined out­put is also set to in­crease through 2021, ac­cord­ing to BMI Re­search. NPI is used as an al­ter­na­tive to re­fined nickel in the stain­less steel in­dus­try.

“The nickel mar­ket has def­i­nitely been a bit tighter in the past cou­ple of months, but look­ing for­ward we’re very con­cerned about this vast flood of nickel ore,” Ian Roper, head of in­ter­na­tional busi­ness at Shang­hai Met­als Mar­ket, said by phone from Sin­ga­pore. That will dwarf de­vel­op­ments on the bat­tery side, Roper said, mak­ing it hard to get “fun­da­men­tally bullish.”

Nickel climbed to $ 13,030 a met­ric ton in in­tra­day trad­ing on Nov. 1, the high­est in more than two years, and traded at $12,380 by 3:23 p.m. in Shang­hai on Mon­day.

China’s stain­less steel pro­duc­tion surged 15% from a year ear­lier in the third quar­ter amid a com­bi­na­tion of re­stock­ing and real de­mand that pushed up prices, ac­cord­ing to CRU Group. Last week, the stain­less mar­ket was rat­tled by re­ports the na­tion’s top sup­plier had slashed De­cem­ber prices, sug­gest­ing a softer mar­ket head­ing into next year. Global growth in nickel use will slow to a lit­tle over 2% next year from 7% in 2017, Mac­quarie data show.

To be sure, new en­ergy ve­hi­cles are set for a piv­otal role longer term as the auto mar­ket turns away from the com­bus­tion en­gine. By 2025, ve­hi­cle bat­ter­ies will ac­count for 500,000 to 600,000 tons of de­mand an­nu­ally, com­pared with 2.1 mil­lion tons of to­tal nickel de­mand at present, UBS’ Shaw said.

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