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Getting a firmer footing on Indonesia’s nickel industry
Amid geopolitical tensions, supply chain disruptions and evolving demand patterns, nickel prices face correction, reflecting the sluggish growth of the global economy.
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Adding value: A nickel smelter operated by Virtue Dragon Nickel Industry (VDNI) in Morosi, Southeast Sulawesi, is seen from the air on Feb. 10, 2023. (AFP/Adek Berry)
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n the volatile commodity market amid the quest for global economic recovery, the nickel industry stands as a pivotal focus for investors. Its price trends mirror the ebb and flow of global sentiments, placing the industry at a crossroads shaped by various factors affecting both short and long-term prospects. Amid geopolitical tensions, supply chain disruptions and evolving demand patterns, nickel prices face correction, reflecting the sluggish growth of the global economy. Contrary to initial expectations of nickel’s immunity, its strategic metal status does not shield it from the pressure on global economic recovery, influencing demand from top nickel-consuming countries like China, Japan and the United States.
Starting in early 2023, nickel prices corrected as the market anticipated a recovery in supply following increasing geopolitical tensions between Russia and Ukraine. However, few foresaw it would dip below US$20,000 per tonne and slip to around $18,000 per tonne in the past week. The loosening steam of China’s economic recovery unexpectedly emerged as a pivotal factor, directly contributing to the subsequent issue: an oversupply in global nickel production, catching the market off guard.
Bloomberg's data reveals a significant shift in nickel market dynamics in first half (H1) of 2023, marking a surplus of 140,000 tonnes of contained nickel, in stark contrast to the same period last year with a deficit of 20,000 tonnes. While the current data underscores oversupply, we view this as a transient phase inherent in the industry cycle. The surge in supply results from the global expansion of nickel smelters, particularly in Indonesia, gearing up to meet anticipated demand from the energy transition era. However, the rapid 19 percent year-on-year (yoy) growth in global refined nickel production outpaced the slower 7 percent growth in global refined nickel demand, creating a mismatch. Still, we strongly believe the market can bounce back, anticipating a much-improved situation by 2024 or 2025 when the global economy normalizes.
Simultaneously, our analysis discerns the Federal Reserve's commitment to maintaining higher interest rates as another key contributor to the recent downturn in nickel prices. This shift altered market perceptions, transitioning from a low to zero possibility of a global recession this year to a higher likelihood, signaling to metal market players that buying power remains under pressure.
In the short term, the nickel industry faces challenges beyond the aforementioned factors. Escalating trade tensions between China and the US, the emergence of the Inflation Reduction Act (IRA) as a coping mechanism in the US and a shift in demand from final products like stainless steel to intermediate products (ferronickel) in China cast shadows on the immediate future. On the domestic front, policy shifts and economic reforms, including a notable move toward downstreaming policies, add another layer of complexity. As the world grapples with the aftermath of recent events, investors should closely monitor how these short-term challenges shape nickel's trajectory in the coming months and, most ultimately, establish a firmer footing for its long-term prospects.
Zooming out to a long-term perspective, the nickel industry must navigate profound shifts in evolving energy landscapes, technological advancements and sustainable practices. Electric vehicles (EVs) stand out prominently in this transformative landscape, emerging as a key driver of future nickel demand. The surge in EV demand, driven by a global commitment to reduce carbon emissions and transition towards cleaner energy alternatives, establishes nickel as a cornerstone in the battery technology powering these vehicles. Anticipating that battery EV demand will exceed 70 million units sold annually by 2040, far surpassing internal combustion engine (ICE) vehicle sales estimated at around 10 million units, the industry faces a transformative era.
As nations worldwide intensify efforts to phase out internal combustion engines, the demand for nickel-based batteries, particularly those with higher nickel content like nickel-cobalt-manganese (NCM) and nickel-cobalt-aluminum (NCA) chemistries, is set to skyrocket.
