With confidence in the nickel market so low, what’s next?

By Gary Peters, director, The Metals Warehouse

Last year the commodity industry witnessed a lot that you can consider unprecedented. The tip of that iceberg was what happened to nickel during the first half of 2022, when it increased to a price on the London Metal Exchange (LME) that had never been seen before, leading to trading being ceased, for days, before finally being reversed.

One of the biggest nickel producers on the planet had bet heavily on the nickel price falling. When their short position was squeezed, the nickel price soared, reportedly resulting in an US$11 billion trading loss. All in all, it was a bit of a mess.

The result of that crash was the implementation of a tolerance –one that allowed for a 15% fluctuation in the price either way –to prevent huge spikes or drops similar to that which happened back in March 2022 from happening again. The rule was simple: If the price superseded that 15% the market would cease trading for the remainder of the day. However, it seems to have done very little towards restoring confidence in traders, as prices are still fluctuating aggressively.

In December, nickel rose significantly – to as high as US$33,000 before dropping again to US$28,000. So, with Christmas and New Year out of the way and business back in full swing, what’s going off with nickel and what ramifications will it have on the rest of the metals market in 2023?

What were the factors behind nickel’s increase?

There are two big reasons why the price of nickel swung so heavily before the end of 2022. The first is the growing confidence in the EV market and short-term predictions on demand and production. The demand for nickel in that market is only going to continue to increase. Projections show that global sales of electric passenger vehicles are projected to surpass 10.5 million, exceeding 2021 levels by about 4 million. By 2030, electric vehicles are also expected to occupy 40% of global sales of new cars.

However, this shift to EV is not isolated to the UK. It’s global, every country around the world is jostling for the same supplies and materials to facilitate their ambitious move.

With each passing year, the technology supporting this transition continues to improve in quality and increase in volume, making it more readily available. Generous government initiatives, like the introduction of subsidies and tax credits, are also becoming the norm – making it more appetising for consumers to embrace the technology.

This is the dominant factor in the supply and demand conversation and will be for several years to come.

The other factor to consider is China coming out of lockdown, although the country’s battle with Covid-19 continues to be incredibly unpredictable. The latest reports show that approximately 900 million people (64% of the country’s population) currently have Covid-19, with that number continuing to increase since the easing of lockdown measures in the final quarter of 2022.

China’s manufacturing economy over the last three years has been hit hard and it’s clear they are attempting to push through this situation to get back to normal. That easing of the restrictions created renewed confidence and led to people investing in nickel once again, which naturally drove the price up.

However, that price is higher than what natural supply and demand would justify. That has led to longer term projections believing prices will fall back in 2023, while the even longer market forecasts for nickel’s value state it will slowly increase with the ongoing demand from the EV market.