[ferro-alloys.com]Nickel in 1H18 – price rallied 42% y-o-y driven by significant market deficit

stemming from strong demand from stainless steel and rapidly growing albeit small

nickel consumption in batteries; exchange inventories drew down sharply since the

start of the year; expectations of the pace of global EV penetration were high and

constantly rising additionally contributing to the reduction of inventories leading to accumulation of battery-grade nickel materials by both investors and battery cathode material manufacturers.

Upward nickel price trend, which started in June 2017 continued in 1H18 on the back of strong industrial consumption in stainless, alloy and battery sectors as well as rising investment demand driven by already high, but also increasing expectations of a potential tightness of the battery-grade nickel materials in the medium to long-term, which is believed should lead to price bifurcation between Class 1 and Class 2 nickel products. Supported by sharp reduction of metal exchanges’ inventories the nickel price gained strong momentum reaching USD 15,750 per tonne

in June, the highest level since April 2014. However, the rising concerns over negative implications of the unfolding trade war between the USA and China on metal consumption, strengthening USD and weakening renminbi resulted in nickel price downward correction in the second half of June in line with other base metals.

The average LME nickel price in 1H18 was USD 13,871 per tonne, up 42% y-o-y.

Global nickel consumption in 1H18 increased strong 12% y-o-y driven primarily by significant ramp-up of stainless steel capacities in Indonesia, which added 90 thousand tonnes to global nickel demand. Nickel consumption in battery sector posted impressive 38% y-o-y growth (from 45 to 62 thousand tonnes) on the back of increase in production of li-ion batteries for electric and hybrid vehicles coupled with the technological shift towards more nickel-intensive composition of the battery cathode material. Nickel consumption in batteries reached 5% of total nickel consumption in 1H 2018.

Even though the developments on the supply side were quite mixed throughout 1H18, they ended up supportive for the nickel price. On the one hand, Indonesia was steadily ramping up its nickel pig iron (NPI) output in line with market expectations and also continued increasing its ore supply to China as export restrictions were lifted in early 2017. On the other hand, some Chinese NPI producers had to curtail their smelting capacities due to tightening environmental regulations.In addition, global production of high-grade nickel in 1H18 showed practically no growth suffering

from the years of underinvestment.

Owing to strong physical demand and investors taking positions, combined metal inventories at London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) reduced sharply since the start of the year by 112 thousand tonnes to 299 thousand tonnes as of June 30, 2018. With another almost 25 thousand tonnes drawdown was recorded in the single month of July. Such a massive (5% of annual global consumption) inventory drawdown was a clear manifestation of nickel market running a sizeable apparent deficit since the start of the year. However, in addition to strong current demand, we believe, some inventories’ drawdown was caused by the active stockpiling in the battery sector in anticipation of rising demand from the electric vehicle industry.

Nickel outlook – positive; the in-house forecast of 2018 market deficit increased

from 15 thousand tonnes at the start of the year to 124 thousand tonnes currently on better-than-expected ramp-up of stainless operations in Indonesia and robust

Chinese consumption, while the growth of supply in the form of NPI in China is

somewhat capped by environmental audits and production of Class 1 nickel

elsewhere is not growing; further expansion of li-ion battery sector driven by

booming EV industry should support the nickel demand both in medium- and longterm.

• [Editor:王可]