European nickel premiums scaled all-time record highs in 2022 as the rising underlying nickel prices on the London Metal Exchange (LME) and declining stocks in LME warehouses changed the dynamics of the spot market.

 

The Argus assessment for the 4x4 inch nickel cathode in-warehouse Rotterdam premium averaged $1,472.65/t this year, up by more than five times relative to $258/t in 2021, with the assessment last at $700-1,200/t. The average premium for full-plate cathode this year was $661/t, more than 11 times higher than last year's $57/t, being last assessed at $200-250/t. And the in-warehouse Rotterdam premium for nickel briquette surged to an average $1,195.25/t this year, an eight-fold rise compared to 2021, with the assessment last at $650-750/t.

 

Premiums eased after peaking across the board to more than $3,000/t in the immediate aftermath of the LME nickel market collapse in March, and have since been steady at current levels throughout the fourth quarter amid uneven trading patterns and tight availability. 

 

High premiums this year have also been linked to wild price shifts in nickel prices on the LME, as poor liquidity has weighed on trading to the extent that large swathes of the market consider nickel prices to have decoupled from physical fundamentals. Official cash nickel prices traded between $21,275.00/t and $31,062.50/t during the fourth quarter of this year.

 

"Pretty much everyone accepts the current level [of premiums] is the new reality", a trader said.

 

But traders cautioned that a uniform direction to premiums is unlikely in the near-term as the market continues to be volatile. Sparse stocks in LME warehouses, which recently touched a 14-year low and have otherwise amounted to an availability of less than two weeks for much of this year, have driven the strength in premiums. But a downside to premiums could emerge from large stockpiles of Russian warrants accumulating in LME warehouses to artificially alter nickel prices, they warned.

 

"One thing that Nornickel has in its favour is that it is a low-cost producer for Europe", a second trader said. "They have planned their sales conservatively and can thus also cope with any production losses."

 

Recent unconfirmed reports of Nornickel planning cuts to supply next year may be driven in part by issues around delivery of spare parts for its machinery and equipment that it acknowledged at the end of the third quarter. A hit to supply as a result of these problems is likely to affect European availability in what is an already tight market, providing upside to premiums, especially as other Class 1 producers are more expensive to buyers in the continent.