Chinese Stimulus Measures, Russian Supply Cuts To Keep Nickel Prices High

Market analyst Fitch Solutions, in its latest industry report, forecasts nickel prices to edge higher in the third quarter as China's stimulus measures improve the demand outlook and the Russia-Ukraine war continues to disrupt supply, before falling towards the end of the year as refinery output increases.

Fitch maintained its annual nickel price forecast of $27,500 / tonne in 2022, while noting significant downside risks to the outlook, depending on China's epidemic response and economic activity.

Year-to-date, nickel prices have averaged $27,912 / mt and are currently hovering around $25,600 / mt. After rising to record highs at the start of the russia-Ukraine war in late February on fears of a drop in Russian exports, prices have collapsed due to China's containment and weak downstream demand for metals.

Fitch expects the new stimulus measures announced by the Chinese government on May 31 to provide demand-side support to prices above their current levels in the third quarter.

中国新型冠状病毒相关的限制weakened demand in the second quarter of 2022, with prices hitting a quarterly low of $25,675 / tonne on 14 June. Some stimulus measures will increase nickel demand, including new rules to increase vehicle ownership quotas, reductions, Fitch said purchase taxes on certain vehicles and increased incentives for infrastructure construction will help reverse the trend of lower demand in the second quarter of 2022 and boost prices in the short term.

在供应方面,会在乌克兰正在进行的战争l continue to weigh on Russian production and exports. Fitch noted that while Russian nickel companies were not directly affected by sanctions, they were affected by supply chain and financing difficulties as Western companies increasingly abandoned the Russian market.

Freight and logistics have become more complex as insurance and transport have become less accessible. Western nickel importers are increasingly shunning metals produced in Russia, largely due to the risk of further sanctions, concerns about the extent of the recently announced sanctions, and reputational risks associated with transactions with Russian entities during the ongoing crisis. Fitch forecasts that Russia's reduced supply to the global market will have a significant impact on prices, as Russia accounts for 9.3 per cent of global nickel mine production and about one-fifth of refined nickel by 2021.

However, Fitch expects prices to fall slightly in the fourth quarter of 2022 as refinery output increases, particularly in Indonesia. The nickel export ban imposed by the Indonesian government in January 2020 has caused short-term supply problems, but has also led to increased investment in the country's downstream sector, and we expect Indonesian nickel production to grow in double digits for the rest of the year.

Fitch notes that low levels of LME nickel inventories continue to pose a threat to volatility in the near term. Together with the price breaking through $100,000 / mt in an instant as a result of the unwinding of the Short position in TSX, low inventories were a factor in the March 2022 price spike and continue to pose upside risks to prices.

Inventories fell from a multi-year high of 264.6kT in April 2021 to 75.0kt on March 8 and remained slightly lower at 71.4kt as of June 6.

Analysts say these low levels increase the likelihood of big price increases in the future if supply and demand mismatches significantly in the short term.