Is 2024 the Year for Nickel to Rebound?

In this article, we will delve into the outlook for nickel in 2024, following the roller-coaster ride it experienced in 2023. After witnessing a significant price decline in the previous year, experts are now predicting a rangebound market for nickel in the year ahead.

A Look Back at 2023

Nickel began 2023 on a high note, thanks to a rally at the end of 2022. However, throughout the year, the price of this base metal experienced a steep decline, ultimately closing nearly 50 percent lower at US$16,375 per metric ton (MT). This downward trajectory was primarily attributed to the rapid increase in production, leading to an oversupply situation.

Indonesia emerged as a key player in the nickel market, accounting for more than 50 percent of global nickel supply. Simultaneously, weak demand from China, which was grappling with the aftermath of ending its zero-COVID policy, further exacerbated the oversupply dilemma.

What Lies Ahead in 2024?

So, what can we expect for nickel in 2024? To gain insights into the future of this metal in terms of supply, demand, and pricing, the Investing News Network (INN) spoke to experts in the field. Let's explore their perspectives step by step.

Experts Predict Another Surplus

As 2024 commences, nickel is burdened by a surplus carried over from the previous year. This surplus is largely attributed to the increased production of Class 2 nickel, with lower purity levels, in Indonesia. Additionally, there has been a rise in the production of Class 1 nickel, which is of higher purity, primarily in China. Class 2 nickel finds its use in products like steel, whereas Class 1 nickel is crucial for creating nickel sulfate and nickel cathodes used in electric vehicles (EVs). This surplus in supply has been met with decreased demand for both types of nickel products, resulting in a precarious situation for the nickel market. Ewa Manthey, a commodities strategist at ING, pointed out that nickel holds the largest short position among the six London Metal Exchange (LME) base metals. She warns that this buildup of short positions makes nickel vulnerable to sudden price spikes if investors decide to unwind their positions, a scenario reminiscent of the dramatic events in 2022.

The International Nickel Study Group (INSG), a body consisting of government and industry representatives, convened in October to assess the state and outlook of the nickel market. According to their forecast, surplus conditions are expected to persist into 2024, with oversupply projected to reach 239,000 MT. This surplus will primarily be driven by increased nickel pig iron output from Indonesia, while decreases in production in China will be offset by higher nickel cathode and nickel sulfate production.

Although the INSG anticipates an increase in demand from 3.195 million MT in 2023 to 3.474 million MT in 2024, production is set to outpace demand, with estimates rising from 3.417 million MT in 2023 to 3.713 million MT in 2024.

Chinese Recovery Critical for Nickel

At the start of 2023, there was optimism that Chinese demand for nickel would surge as the country relaxed its strict zero-COVID policy. Nickel plays a vital role in the construction industry, particularly in the production of stainless steel.

However, the recovery in China was slower than anticipated, and the expected demand from the real estate sector never materialized. China's lagging recovery post-COVID lockdowns had a negative impact on nickel demand and pricing throughout 2023. While efforts were made to stimulate the real estate sector, 2024 begins with more economists forecasting a continued economic downturn in China.

Nonetheless, the INSG's October forecast indicated a growth in demand for stainless steel in the second half of 2023, with further growth anticipated in 2024.

Rising Demand from the EV Sector

Beyond the real estate sector, the expanding electric vehicle (EV) industry is emerging as a significant consumer of nickel. Global nickel consumption is on the rise due to the recovery of the stainless steel sector and the increased usage of nickel in EV batteries. Batteries now account for nearly 17 percent of total nickel demand, second only to stainless steel.

Nickel, serving as a cathode material in EV batteries, has become a critical component in the transition away from fossil fuels, which is expected to bolster its price in the long term. This green appeal of nickel to investors is anticipated to support higher prices in the future.

Shifting Landscape of Nickel Demand

While the demand for battery-grade nickel is expected to grow in the coming years, manufacturers and scientists are actively exploring alternatives to reduce their reliance on nickel and cobalt. Environmental and human rights concerns, along with high production costs, have driven this quest for alternatives.

Lithium-iron-phosphate (LFP) batteries have gained traction, particularly in Asia, and have garnered interest from major EV producers like Tesla. These batteries offer longer lifespans and lower production costs, although they have limited demand in regions like North America, where long-range capabilities remain a key consideration for consumers.

However, for the time being, nickel-manganese-cobalt (NMC) batteries continue to be a crucial component of the EV landscape. Despite their challenges, including charging infrastructure gaps, supply chain disruptions, and higher interest rates affecting the industry, NMC batteries maintain their relevance.

The 2024 Nickel Market Outlook

Following the sharp drop in 2023, the nickel price is expected to remain rangebound for most of 2024. Experts believe that while LME nickel prices may find support from a weaker US dollar and easing monetary policy, they will remain subdued due to continued growth in primary nickel output from Indonesia and China, resulting in a surplus for the third consecutive year.

Jason Sappor of S&P Global Commodity Insights predicts that nickel prices will stay relatively flat. He forecasts an average of US$16,813 in 2024, with prices gradually moving up from US$16,600 in Q1 to an average of US$17,000. However, it's worth noting that these prices are expected to remain elevated compared to the levels observed before the short squeeze in March 2022.

Sappor also raises the possibility that the market could witness mine supply curtailments as nickel prices sink deeper into the global production cost curve. However, as of now, there is no indication that producers plan to ease production in the coming year.

The Impact of Global Economic Trends

In conclusion, nickel, like other commodities, is significantly influenced by broader macroeconomic forces in the post-COVID era. Higher interest rates are affecting investment across the mining sector while dampening demand for large-ticket items like real estate and automobiles. These factors are contributing to another year of oversupply for nickel. While a potential recovery in the Chinese real estate market and increased demand from EV tax incentives could alter the trajectory, the challenges facing the nickel market in 2024 appear formidable.

For investors, navigating the nickel market will require close attention to global economic trends. Moreover, the differentiation between responsible, low-carbon production in the West and high-carbon production in China and Indonesia will be a critical aspect to watch.