Nickel Price Update: Q1 2024 in Review

Government intervention

In an email to INN, Ewa Manthey, Commodities Strategist at ING, suggests this places western producers in a challenging position to affect the market, even with cuts to production.

“The recent supply curtailments also limit the supply alternatives to the dominance of Indonesia, where the majority of production is backed by Chinese investment. This comes at a time when the US and the EU are looking to reduce their dependence on third countries to access critical raw materials, including nickel,” Manthey said.

This was affirmed by Mazumdar, who said the US is working to combat the situation through a series of subsidies designed to encourage western producers and aid in the development of new critical minerals projects.

“The US Inflation Reduction Act (IRA) promotes via subsidies sourcing of critical minerals and EV parts from countries with which it has a free trade agreement or a bilateral agreement. Indonesia and China do not have free trade agreements with the US,” Mazumdar said.

He went on to suggest that the biggest benefactors of this plan would be Australia and Canada, but also noted that with prices remaining depressed multi-billion dollar projects would face headwinds to get off the ground.

Green nickel

One way to encourage western production has been creating a separate price scheme with the creation of a green nickel market that plays into western producers’ focus on environmental, social and governance (ESG). Green nickel is defined as a low-carbon product that produces less than 20 MT of carbon dioxide per MT of production.

The oversupply of lower-grade laterite has pulled prices down across the board, including for higher-grade and more environmentally friendly sulfide projects like those in Australia and Canada. This has led to the suggestion of premium pricing for green nickel; however, this hasn’t gained much traction on the London Metals Exchange (LME).

“There is little evidence that a premium for ‘green nickel’ producers or developers has much momentum although an operation with low carbon emissions may have a better chance of getting funding from institutional investors in western countries,” Mazumdar said.

Even though there might not be much interest in green nickel on the LME, there have been some vocal proponents like Wyloo’s CEO Luca Giacovazzi. He sees the premium as being essential for the industry, adding the industry should be looking for a new marketplace if the LME is unwilling to pursue a separate listing for green nickel.

The calls for a premium have largely come from western producers that incur higher labor and production costs to meet ESG initiatives, which is happening less amongst their counterparts in China, Indonesia and Russia.

Western producers were caught off guard early in March as PT CNGR Ding Xing New Energy, a joint venture between China’s CNGR Advanced Material (SHA:300919) and Indonesia’s Rigqueza International PTE, applied to be listed as a “good delivery brand” on the LME. The designation would allow the company, which produces Class 1 nickel, to be recognized as meeting responsible sourcing guidelines set by the LME.

If it is approved, which is considered to be likely, this would be the first time an Indonesian company would be represented on the LME. However, there has been pushback from western miners who have noted that production in Indonesia faces a range of ESG and responsible resourcing challenges.

Investor takeaway

Nickel is a critical metal for the production of batteries to be used in EVs. Generally, battery-grade nickel is processed from the higher quality raw material produced from sulfides, but more recently Chinese production has turned to lower quality laterites. While batteries made from laterite nickel have lower energy density, their cost is also much lower, which may provide key cost savings for EV buyers.

However, with lingering inflation and high interest rates globally, demand for EVs has fallen off over the past two years, which has in turn reduced the demand for nickel.

Meanwhile, despite some slow down due to the approval process, high supply rates from Indonesia have continued into 2024 and there doesn’t seem to be cuts on the horizon from the nation.

These factors have led to a drop in profits and curtailments from large nickel operations in western nations, and made companies unlikely to pursue the construction of new projects in the near term.

“Looking ahead, we believe nickel prices are likely to remain under pressure, at least in the near term, amid a weak macro picture and a sustained market surplus,” Manthey said.

The continued surplus in the market may provide some opportunities for investors looking to get into a critical minerals play at a lower cost, but a reversal may take some time.