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A short-term risk of another short squeeze
in the nickel market remains, causing S&P Global Commodity Insights to
increase its 2022 nickel price forecast by 45.9% to $32,868/mt, according to
the March Nickel Commodity Briefing Service report released March 31.
Register Now "There is a risk that
another short squeeze could hit the [London Metals Exchange] nickel price in
the near term, given the presence of both a dominant warrant-holding position
on available LME stocks and Tsingshan's short position," S&P Global
Commodity Insights Metals and Mining Research Senior Analyst Jason Sappor said
in the report.
He noted that the 2022 price forecast
represented a 78% year-on-year increase due to the intensity of the March short
squeeze. However, he added that the forecast was subject to significant risks,
including the possibility of higher nickel prices triggering major demand
destruction, particularly in the stainless steel sector.
The nickel price was especially volatile
during March, with rising concerns that Russia's invasion of Ukraine could
result in sanctions on nickel exports from major primary producer Russia,
according to the report.
"In 2021, we estimate that Russia
accounted for 15.2% of global production of class 1 nickel, a primary nickel
product used to make nickel sulfate to manufacture lithium-ion batteries,"
Sappor said.
The fallout from Russia's invasion and
subsequent sanctions on Russian financial institutions and key stakeholders had
halted all non-essential cargo bookings to and from Russia until further
notice, Sappor said.
"This has compelled nickel consumers
in those markets to shun Russian metal and has generated a scramble for
alternative sources of supplies, driving the LME three-month nickel price up
from $24,716/mt Feb. 24, the day the invasion started, to $28,919/mt March
4," he added.
Trading suspension
The volatility came to a head on March 8,
when the LME suspended trading after the three-month spot nickel price reached
an all-time high of $101,365/mt in early trading, after closing at $48,078/mt
March 7.
It had dropped back to $80,000/mt as of
0815 GMT on March 8 when the suspension took effect, although all trades after
0000 GMT on March 8 were then canceled.
Sappor attributed the price spike to
heightened concerns over Russian nickel exports, which activated a historic
short squeeze.
"The short squeeze gathered momentum
as China's Tsingshan Holding Group Co. attempted to cover its massive short
position, which is reportedly equivalent to between 100,000 mt and 200,000 mt
of metal," he said.
Trading resumed on March 16 with a preset
daily limit of 5%. The limit was then increased to 8% from March 17, 12% from
March 18 and 15% from March 21, with the lower end hit each day.
March 22 marked the first day of normal
trading, however, both March 23 and March 24 saw the price hit the upper 15%
limit. Since then, trading has been normal albeit at low volumes.
The LME three-month spot nickel price was
trading at $32,085/mt at 1817 GMT March 31, down 2.5% on the day, but up 52%
year to date.
Since trading resumed, the LME three-month
nickel price had closed in a "gaping" $28,159-45,590/mt range amid
extreme volatility, Sappor said, adding that S&P Global forecast the
average price to rise nearly 80% year on year in 2022, despite the tightness
expected to ease and cool the market going forward.
"We expect the LME nickel price to
remain volatile in the near term, as the global nickel market finds equilibrium
following recent events," he said.
"There is also a risk that a rise in
the nickel price could trigger another substantial short squeeze, with
Tsingshan reportedly still having a short position in the market and LME data
showing that a dominant 40%-50% warrant-holding position remains on the
exchange's available nickel stocks," he added.
S&P Global also lifted its other price
forecasts, with the 2023 price raised by $5,000/mt to $25,000/mt.
S&P Global widened its global primary
nickel market surplus forecast for 2022 to 46,000 mt from the previously
expected 34,000 mt, due to expectations that the macroeconomic impact of the
Russia-Ukraine conflict would dent global primary consumption, according to the
report.
The forecast was also impacted by S&P
Global Ratings Economic Research lowering its 2022 global GDP growth forecast
to 3.4%, with the conflict expected to weigh on global economic activity.
"While we have yet to incorporate any
curtailments to Russian primary nickel output into our forecasts for 2022, we
anticipate that the Russian invasion will prompt a period of upheaval in global
nickel trade flows," Sappor said.
He noted that Norilsk Nickel President
Vladimir Potanin had recently confirmed market expectations that it was looking
to redirect its European and US supplies to China.
"This is likely to displace material
from countries such as Australia, which in turn could be diverted toward the US
and EU," he said.
The market was expected to remain in
surplus through to 2025 at 57,000 mt in 2023, up from the previous forecast of
48,000 mt; 69,000 mt in 2024, down from 79,000 mt; and 8,000 mt in 2025, down
from 49,000 mt.
While S&P Global previously forecast a
surplus of 17,000 mt in 2026, this was changed to a deficit of 77,000 mt, the
first deficit since 160,000 mt in 2021.
Nickel prices hit an unprecedented
$101,365/mt in early trading on March 8 following a historic short squeeze on
pure nickel and have been volatile ever since.
China, the world's largest consumer of
nickel, has seen trading activity for nickel sulfate, an important component of
nickel-cobalt-manganese (NCM) batteries, fall to an all-time low. This comes at
a time the China is witnessing booming domestic demand for electric vehicles,
S&P Global Commodity Insights' Clement
Choo, Lucy Tang and Jesline Tang discuss what the nickel price volatility could
mean for battery chemistries and pricing moving forward.