Column: Nickel gripped by violent squeezing as stocks disappear: Andy Home

LONDON, Jan 19 (Reuters) – The nickel market is experiencing the most severe pressure in over a decade.

The London Metal Exchange (LME) three-month nickel has risen above $ 22,000-per-ton for the first time since 2012, last trading at $ 22,300 per tonne.

The cash metal premium rose to $ 495 per tonne on Monday, the widest it has been since 2009.

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This squeeze was made in China, where the price has risen for the life of the contract, but has now hit the London market with full force.

The common theme is one of declining inventories and a race for the type of nickel used in batteries for electric vehicles. So-called Class 1 metal is what is traded and stored on both the LME and the Shanghai Futures Exchange (ShFE).

The market has been collectively wrongly fed by the strength of demand from both the burgeoning battery sector and the stainless steel sector, which has historically dominated the metal’s profile of use.

Nickel gripped by violent squeezing as stocks disappear

THE WILD

Nickel’s turn on the wild side has coincided with the LME’s third-Wednesday monthly prompt date. It is characteristic of this skewed exchange that the monthly clash of positions takes place on the third Monday of each month, in this case January 17, thanks to the LME’s rolling two-day prompt system.

Admittedly, time-spreading became incandescent at the start of this week.

“Tom-next,” which is the cost of rolling an overnight position, rose to $ 20 per share. tons Monday and to $ 90 Tuesday – last chance for short-term holders looking to roll out of danger.

Short-term time spans are very sensitive to dominant long positions, such as the unit that had cash-date positions of over 90% of available LME shares at the end of Friday. However, it is worth noting that such a large position comes with loan requirements, which may in fact have helped to ease the daily spread tightness.

The LME has announced that they are following the situation closely, which is a matter of course when things get ugly. There is still no indication that the stock market will step in to curb the decline, as it was forced to with copper in October last year.

And it may not need to, as the scattering structure shows signs of waning as nickel passes through the January monthly prompt. The benchmark cash-to-three-month spread closed Tuesday with a decline of $ 370 per share. tons, still super tight, but not as extreme as Monday’s action.

However, the spreads will remain volatile as long as the LME portfolio continues to fall, which it shows all signs of doing.

DISAPPEARING SHARES

LME stocks have fallen every day since October last year, and the overall figure has fallen from over 143,000 tonnes to 94,830 tonnes.

A barrage of arrivals this week has failed to stop the downward trend with metal still flying out the warehouse door.

This week’s squeeze has also seen metal awaiting physical load-out put back on warranty. But even after 3,192 tonnes of net “reverse cancellations”, almost half of the LME stocks are scheduled to leave. What’s left – 47,502 tonnes – is the lowest since 2019.

There is also no significant tonnage sitting in the LME shadow. Off-warrant stocks totaled 5,866 tonnes at the end of November, down from over 44,000 tonnes in February. Combined on- and off-warrant stocks fell by 161,000 tonnes, or 57%, during the first 11 months of 2021.

The Shanghai inventory has been empty for many months, which has resulted in ongoing pressure on the ShFE nickel contract. Last week’s total of 4,711 tonnes was the lowest since the contract was launched in 2015.

Although composed of a limited number of deliverable brands, Shanghai’s depleted inventory may be an ominous warning of what lies ahead for the LME, whose metal continues to decline at the latest pace.

CRAZY SHOCK

Where does all the nickel go?

The market has seen an extraordinary increase in demand over the last year from both stainless steel and the battery sector.

This has generated “the most significant degree of tightening surprise in balance across base metals by 2021,” according to Goldman Sachs. (“Metals Watch: Aligned for the next leg higher,” January 11, 2022)

The bank originally predicted that the global nickel market would record a supply surplus of 49,000 tonnes last year, but now estimates a deficit of 159,000 tonnes.

It expects another small deficit of 30,000 tonnes this year.

The same goes for JPMorgan, which expects a deficit of 40,000 tons by 2022. (“Metals Weekly”, January 14, 2022).

While the red-hot stainless steel sector is expected to cool off during this year, demand from the fast-growing battery sector will only accelerate as the electric vehicle revolution picks up speed.

JPMorgan analysts estimate that nickel consumption in batteries will grow by 50% year-on-year by 2022, equivalent to a further 127,000 tonnes, taking over from stainless steel as the biggest driver of growth in demand.

A massive expansion of nickel production capacity in Indonesia should help restore balance in the market, but this will take time and come with lots of reservations as many operators embark on innovative technical treatment routes to convert low quality nickel to battery quality metal.

Meanwhile, battery manufacturers are tapping stocks of Class 1 material, which is traded on both the Shanghai and London markets.

THE GHOST OF 2007

This is the problem with nickel, which is found in a wide range of grades and grades.

Many of them, such as ferro-nickel, matt nickel and nickel hydroxide, cannot be supplied against the LME or ShFE contracts.

Production may boom, but without a corresponding increase in Class 1 nickel, stock markets will remain under pressure.

This is what happened in 2007, when LME nickel stocks fell below 5,000 tons and the price rose to over $ 50,000 per tonne. tonnes, which triggered structural changes in the market, primarily China’s rediscovery of nickel pig iron as a processing route. What had been economically unprofitable before 2007 became a major production flow over the ensuing decade.

The ghost of 2007 will soar ever larger over this market as long as the stock market’s inventory continues to trend lower.

The opinions expressed here are those of the author, columnist for Reuters.

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Editing Emelia Sithole-Matarise

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