Sabre-rattling over tariffs slashes nickel

Nickel prices had been expected to flourish but the trade war between the US and China has thrown a spanner in the works.

Nickel prices were rising steadily during the early months of 2018 until talk of a trade war between the US and China threw a spanner in the works. Picture: Reuters

The rise of the electric vehicles was meant to mark a turnaround for nickel, the boom-and-bust metal that has been stuck in the doldrums for the past few years.

It hasn’t panned out that way.

Nickel is a major ingredient in many of the lithium ion batteries that power EVs, and as the metal climbed towards $US17,000 a tonne last April it looked like the sector had truly turned. Nickel was back, and was driving a Tesla.

But that upwards trajectory flipped in reverse as Donald Trump launched his trade war against China. Most commodities were hit hard on the back of a potentially enormous trade dispute between the world’s two biggest economies, but the damage to nickel was particularly severe.

Stainless steel, which still represents about 70 per cent of the end use for nickel, is a strong barometer of global economic health. That meant nickel became a proxy for the trade war, and by the start of this year the price of the metal had fallen back to almost $US10,500 ($14,650) a tonne.

But while prices have been falling, so too has stockpiles in warehouses around the world. The nickel stockpiles sitting in the London Metals Exchange’s warehouses have fallen from more than 360,000 tonnes a year ago to 197,952 tonnes last week — their lowest level since July 2013.

For Independence Group managing director Peter Bradford, the retreat in nickel prices has been particularly frustrating.

Independence, through its Nova nickel mine, and other local nickel producers and developers such as Western Areas and Panoramic Resources had shaped as the big beneficiaries of the EV-inspired turnaround in nickel prices.

“For as long as we get this sabre-rattling over trade tariffs, that concern is going to dictate pricing even as we have robust supply and demand fundamentals,” Mr Bradford said.

While the dominant use for nickel is still stainless steel, EVs are forecast to become increasingly important to the nickel market.

Recent analysis by Fitch Solutions forecast for nickel prices to rise steadily to $US16,250 a tonne by 2022, with the nickel market to remain in deficit out to 2025.

Fitch forecasts China’s demand for nickel to grow, both through infrastructure development and EVs. Under Fitch’s forecasts, Chinese EV sales are expected to grow 24.1 per cent year on year out to 2027.

Fitch notes China has increased the minimum range at which EV manufacturers can benefit from state subsidies from 100km to 150km — which will increase Chinese nickel demand.

“This is because longer-range EVs need higher nickel content in their battery cathodes,” Fitch said.

Investment bank UBS has identified nickel as its top commodity pick for 2019, given those low nickel inventories and its belief that the trade war fears have been overdone.

UBS’s commodity analysts believe EVs will deliver a “renaissance” for the nickel market, with nickel already used extensively in two of the three dominant battery chemistries for electric vehicles.

Nickel is not used in China’s preferred EV cathode, but UBS is expecting that to change as China focuses its attention on improving the range of its electric cars.

“We think that evolution of the EV battery will start favouring nickel-rich batteries, and with a stronger view on EV vehicle penetration we think demand for the metal will come soon,” UBS said.

Unlike other commodities strongly exposed to the battery theme, such as lithium, cobalt and graphite, there’s been no speculative boom in nickel stocks and no explosion in nickel exploration.

That makes it harder to see where a sharp nickel supply response could come from.

“We’ve had quite low nickel prices for some time, so very few companies have been doing nickel exploration,” Mr Bradford said.

“As an industry, we’re going to have to have our skates on to meet that increased demand.”