The price of nickel is relatively low. In real terms – that is the price corrected before inflation – the nickel price is now at an identical level as the price in 2002-2003. That is just before China got a truly dominant role in the nickel market. And since 2003 it went fast. The demand for nickel from China exploded and the price increased significantly. The nickel price reached a peak of nearly USD 45.000/t in 2007, but this level turned out to be untenable. The 2008-2009 crisis caused a collapse and the nickel price lost 50% of its value in less than a year. Now the price is on average USD 9.783/t. Three countries dictate market trends and all three of these countries are in Asia. China is one of them; the other two are the Philippines and Indonesia. Together, these three countries have a share of 34% in the total mining production of iron ore.
In the Philippines
It seemed like the nickel price was going to recover steadily. By the end of 2016, a Philippine minister had commissioned to close half of the number of open-pit mines in the country to comply with environmental directives. Since the Philippines have a share of 22% in global nickel ore production, the measure caused a price acceleration. Such a reduction in the supply of ore causes a lot of scarcity. However, the optimism was short-lived.
Already in 2014, the government in Indonesia had tied down the export of raw nickel ore to stimulate the economy. No nickel ore could leave the county and since it has a share of 7% in the global nickel ore production, it had a significant impact on the global supply and demand balance and thus on the price. But in the beginning of 2017 the export restriction was unexpectedly eliminated, resulting in an oversupply of nickel ore on the global market. The price collapsed. Meanwhile (May 2017) in the Philippines, the Minister of environment, who gave the order to close the mines, was replaced. Her replacement appears much less strict. The expectation is that there will not be more closures of mines, and perhaps the earlier closures will be cancelled. In short, the supply can increase again and this perspective pushes the sentiment in the nickel market.
Approximately 65% of the nickel ore is further processed upstream in the stainless steel sector. China is the big user here and the stainless steel is currently weak. The demand stays behind, the stainless steel prices decrease and the sentiment is negative. However, it is positive that stocks at traders and stainless steel plants have sharply decreased, but this only has an inhibitory effect on the price decline. In short, the relatively low price is also a reflection of the low confidence of stakeholders in the nickel market. The movements in nickel prices are now more politically driven, in the longer term the image is something different. The global supply and demand balance up to 2019 indicates a shortage of nickel. There is definitely a price-boosting effect in the coming years.
Source: ABN AMRO – Insights