January 2022
Nickel prices started 2021 on the up, at ~US$16,600/t, as supply continued to be built out in Indonesia and hoovered up by China—largely from Chinese-owned and operated capacity developments in the country—to fill the gap left by Indonesia’s raw ore export ban, which came into place at the start of 2020.

While the emergence of nickel demand growth from the EV sector has added an element of excitement to nickel markets, with the sector’s demand for a range of higher-grade nickel products, the main driver is still demand from the stainless-steel industry. 2021 saw one of the world’s largest nickel and stainless-steel producers, Tsingshan, throw a curveball to the market, announcing it would begin producing battery-grade metal from its significant stainless-steel-focused products.

Tsingshan’s announcement in March that it had secured offtake agreements for battery-grade nickel matte with CNGR and Zhejiang Huayou saw the exchange nickel price take a hit, declining nearly 20% in a week, as the market digested the signal that there may be no shortage of supply. After plateauing for a month or so, the price continued its upward march on strong demand from the stainless-steel sector and growing interest from the battery sector, and as the global economic recovery started gaining traction. Besides the March shock, the nickel price has largely been on the up through the year, assisted by production disruptions in the June quarter, rising 14% and expected to finish the year at ~US$19,800/t. The full-year average price is expected to be ~US$18,370/t, a 33.4% rise from the 2020 average.

With nickel in short supply as capacity to mitigate the loss of Indonesian ore to Chinese smelters continues to be built out and demand rises from the battery sector, the commodity maintained its reputation for price volatility. A number of incidents over the year unsettled the market, though none had an impact as large as Tsingshan’s nickel matte announcement. Vale struggled with strikes and maintenance at its Sudbury operations and unplanned maintenance at its Clynbach refinery, while Nornickel suffered flooding events at two of its main mines.

Despite the late-year easing of China’s largely unrelenting economic growth, production struggles—particularly in the June quarter—have seen AME’s finished nickel market balance shift to a deficit of 128kt. This has helped nickel to a strong finish, price-wise, at the end of the year. Class 1 nickel specifically is considered to be in more serious deficit as the industry plays catch-up to the emerging battery sector.

LME nickel stock levels have been on a steady decline since April this year. The expected deficit has seen stocks decline from an annual high of ~260kt to head towards just 100kt. The declining stock levels are providing additional support to current price levels.

Mined Nickel Supply

Global mined nickel supply will be ~3,210kt for the full year in 2021, representing a massive rise of 25.8% from 2020. The increase is almost entirely due to developments in Indonesia, which has picked up where it left off in 2019 after a blip in 2020 saw a decline in production following implementation of the ore export ban. Further consolidating its place as the largest producer of mined nickel, the country is expected to produce 1,115kt over the year, an increase of 47.5% from 2020.

Outside Indonesia, the Philippines, New Caledonia, Russia, Australia and Canada remained the other significant producers of mined nickel, though their cumulative production now equals only 20% more than Indonesia’s. These major producers all increased production over 2021. Of note, Canada saw the start up of an expansion at Vale’s Voisey Bay operations, Australia’s Ravensthorpe continued its return to full production, and the Philippines continued working hard to meet demand from China following Indonesia’s departure from the seaborne ore market.

Nornickel had a rough start to the year, with extensive flooding in its Oktyabrsky and Taimyrsky mines impacting production through most of the first half of 2021. Despite suffering a major flooding event which saw the source of over a third of the company’s ore production cease operations for a number of months, the company managed to increase total production from that of pandemic-affected 2020. The company also suffered the collapse of an ore transfer point at its Norilsk concentrator, which also hampered production in 2021.

Finished Nickel Supply

Finished nickel supply is forecast to increase 2.5% in 2021 to 2,663kt. In line with demand sectors, the breakdown of finished nickel products remains dominated by stainless steel feedstocks, which account for ~75% of nickel demand. Recent history has seen the rise of Indonesia as a major player in producing both nickel feed and stainless steel at co-located mills.

China has been overtaken as the largest producer of finished nickel, as a significant proportion of its production has essentially been offshored since the Indonesian ore export ban. That being said, the country is still expected to produce an estimated 658kt of finished nickel products in 2021. However, this represents a 12.3% decline from the country’s 2020 output, and in the same period, production from Indonesia will have surged 33.8% year on year to 889kt.

Indonesia has increased its production of finished nickel products by ~581% in the last five years as it continues its conscious effort to add value to its abundant nickel ore resources and develop a domestic processing industry. This trend is expected to continue into the future, with the country targeting the dominant demand source, the stainless-steel sector, as well as making a significant contribution to the emerging battery materials industry. Looking to move further downstream, Indonesia has also developed complementary stainless steel production capacity and has ambitions to be a major player in the battery and eventually the EV space. In a shift to the battery sector, 2021 saw the start of production from Indonesia’s first and second HPAL operations, the 37ktpa (contained Ni) Lygend HPAL on Obi Island and the 60ktpa Huayue HPAL in the Morowali Industrial Park, both of which produce nickel intermediate for nickel sulphate plants.

Nickel Demand

Rebounding strongly from pandemic-plagued 2020, finished nickel surged 17.4% in 2021 to 2,800kt. Demand growth has—volumetrically—been largely driven by economic stimulus from China, and increasingly from the rest of the world. This economic stimulus has had a significant infrastructure and construction focus, increasing demand for stainless steel. The automotive sector has lagged in its recovery to a degree amid constraints caused largely by the global chip shortage.

Though no longer the largest producer of finished nickel products, China remains by far the largest consumer of the material. The country is expected to consume more than half of global production in 2021, a whopping 1,560kt of finished nickel products. Consumption comes from its monster stainless steel industry and, increasingly, from the production of batteries driven by domestic uptake targets for EVs.

The distant second-, third- and fourth-largest consumers of finished nickel are Indonesia (392kt), Japan (164kt) and the US (117kt). All three currently produce significant volumes of stainless steel. While Japan and the US use their output to supply their domestic automotive sectors, Indonesian stainless-steel product is largely shipped to China. With the increase of Indonesian stainless-steel capacity, the country has seen its finished nickel demand jump 87% over 2021. In the future, backed up by active developments, Indonesia will look to target an increasing proportion of its nickel capacity towards the battery materials market.

Stainless steel and alloying applications have dominated, and will continue to dominate, nickel demand, if not the narrative.

Battery Power

The rise of electric vehicles has been all the rage in nickel demand narratives over 2021, with more concrete movements seen in the space than were seen in 2020. This has increased interest in higher-quality nickel products which can be further processed to nickel sulphate. While the majority of capacity buildout within Indonesia through 2020 and into 2021 remained focused on supplying the stainless-steel sector, a number of battery sector developments have since occurred.

Beyond Tsingshan’s plans to produce nickel matte from the output of its ferronickel capacity, 2021 saw the start-up of Indonesia’s first HPALs on Obi Island and in Morowali Industrial Park, with a respective 37ktpa and 60ktpa of contained nickel production as mixed hydroxide precipitate (MHP).

The other major news on the supply side of battery-focused production was the first nickel sulphate production from BHP’s Nickel West refinery at Kwinana. The 100ktpa plant produced its first NiSO4 crystals in October this year. In Finland, Terrafame also commissioned its 170ktpa NiSO4 facility, the largest nickel sulphate production plant in the world, which is squarely targeted at the European EV sector.

While AME considers nickel sulphate a longer-term prospect as a significant volumetric demand driver of nickel, this hasn’t stopped a number of projects targeting the market from being announced or progressing over 2021. A third HPAL at Morowali is nearing completion, and Eramet, BASF and Vale have all declared their intention to undertake developments.

Existing and expanding global battery production capacity will provide a ready market and upside potential, but there remains the possibility that the initial hype surrounding battery materials—which has seen a rash of projects announced—and EV uptake may see marginal projects approved, leading to over-supply conditions early in the industry’s development. Current efforts to increase the proportion of nickel in battery configurations may help to absorb this supply.