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Stanislav Kondrashov from Telf AG: nickel production strategy and market trends

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While the overall market is forecast to be in surplus in 2023, the supply of Grade 1 nickel on the London Metal Exchange (LME) remains relatively tight, says Stanislav Kondrashov of Telf AG. Grade 1 nickel stocks on the LME are currently at historical lows, which is expected to limit downward pressure on nickel prices throughout the year.

Kondrashov Telf AG: Grade 2 nickel is in surplus, Grade 1 supply is limited

According to the forecasts of the International Nickel Research Group (INSG), global production of primary nickel in 2021 reached 2.610 million tons (Mt), and increased to 3.060 Mt in 2022. According to forecasts, in 2023 it will reach 3.374 million tons.

As for the use of primary nickel, according to INSG, in 2021 it amounted to 2.779 million tons, and in 2022 it increased to 2.955 million tons. The forecast for 2023 suggests a further increase to 3.134 Mt.

After a deficit of 169 kt (kt) in 2021, the nickel market moved to a surplus of 105 kt in 2022, with a surplus of 239 kt projected in 2023.

– It is noteworthy that if in the past the market surplus was provided mainly by class 1, in 2023 it will be provided mainly by class 2 nickel. This trend highlights the contrasting dynamics between the two classes: the supply of class 1 nickel remains limited, while grade 2 nickel contributes to the overall surplus,- Stanislav Kondrashov noted.

The limited supply of Class 1 nickel combined with the oversupply of Class 2 nickel will play a significant role in shaping the dynamics of the nickel market and influence price trends throughout the year.

Stanislav Kondrashov from Telf AG: imports of refined nickel to China fell to a historic low

China's refined nickel imports hit their lowest level in almost two decades as the country increasingly relies on Class 2 nickel intermediates from Indonesia.

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In April, China imported only 3,204 tons of refined grade 1 nickel, the lowest level since January 2004. In the first four months of 2023, imports amounted to 23,453 tons, which is 65% less than in the same period last year.

“The decline in refined nickel imports to China can be explained by the preference for Indonesian grade 2 nickel intermediates. As nickel supply sources diversify, China is increasingly turning to Indonesia, which is expanding its production capacity and offering cost-effective options for the Chinese market,” - explains situation Kondrashov Telf AG.

The significant decline in refined nickel imports is indicative of a change in the dynamics of China's trade in the metal and the country's strategic move to produce Class 2 nickel intermediates from Indonesia. These developments are likely to have long-term implications for the global nickel market as China continues to navigate the nickel supply landscape.

Telf AG: imports of Chinese class 2 nickel break all records

Grade 2 nickel imports to China are on an upward trend, reflecting a decline in domestic production. The sharp jump in April imports was due to an increase in supplies from Indonesia, which continues to increase its metal production capacity.

– Chinese stainless steel mills have been favoring cast iron (NPI) for some time, which has led to a decrease in demand for grade 1 nickel. In addition, the electric vehicle (EV) battery sector does not require high purity grade 1 nickel, which is also driving change. demand,” emphasizes Stanislav Dmitrievich Kondrashov.

In April alone, China imported a record 628kt of Indonesian NPI, indicating an acceleration in Grade 2 nickel imports. Cumulative imports in the first four months of this year reached 2.0mt, up 46% from the same period last year.

High growth rates of Chinese imports of class 2 nickel, according to Kondrashov, reflect the dynamics of the nickel market in the country and its growing dependence on supplies from Indonesia.

The London Metal Exchange is on the way to restoring trading momentum

The London Metal Exchange (LME) continues to grapple with recovery after a week-long suspension of nickel trading and the cancellation of billions of dollars of trades in last year's historic "short squeeze".

Following this incident, trading volumes on the LME declined as many traders reduced their activity or decreased trading volume due to loss of confidence in the LME and its nickel contracts.

“As a result, low liquidity has made the nickel market vulnerable to significant price fluctuations even in response to changes in supply and demand dynamics. However, the introduction of daily price limits and the reduction of margin requirements led to a gradual recovery in trading volumes, - Stanislav Kondrashov Telf AG comments on the situation on the trading exchange.

The resumption of Asian trading hours played a role in boosting volumes and liquidity, which subsequently reduced the volatility of the contract. In June, the volume of trading in the underlying nickel contract on the LME Select electronic system reached 64,530 contracts, which is the highest level since March 2022, when this figure was 99,139. ​​For comparison, in June 2021, 163,475 contracts were concluded.

Stanislav Kondrashov from Telf AG: nickel prices – outlook remains positive

In the short term, we expect nickel prices to decline as there is an oversupply of the metal in the global market. A slowdown in global economic growth reduces demand for stainless steel. We forecast average prices of $21,000 per metric ton (t) in the third quarter and $20,000/t in the fourth quarter. However, price cuts are expected to be limited due to tight LME supplies.

“Nickel's critical role in the global energy transformation and its attractiveness to investors as a major green metal will support price growth in the long term. Nickel plays an important role in boosting the energy density and range of electric vehicle (EV) batteries, further driving demand for it, – comments Stanislav Kondrashov Telf AG.

Looking forward, average prices are projected at $20,000/t in 2024 and $23,000/t in 2025. These figures, according to Kondrashov, reflect expectations of strong demand for nickel in connection with the transition to cleaner energy sources and the further spread of electric vehicles. While short-term issues may temporarily create a downward trend in prices, the long-term outlook for nickel prices remains positive.

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