Nickel transaction volumes and prices rising. Traditional nickel producers are running on empty. Russian nickel production not in the focus of sanctions. Will the market surplus turn into a deficit?

Chinese statistics cause doubts. Award of mining rights going slowly in Indonesia. Discussion about carbon footprint of primary nickel is taking off. There are also dirty electric vehicles.

Green lead markets should put things right. But what is all the discussion worth if no one wants to pay for “clean”. DecarbInd – pardon? A trio of technology, scrap and renewable energy.

Indonesia has a successful industrial policy. The global player in the meantime. And an important partner for China and global battery production. Left or right or actually right or left?

Rising transaction volumes and prices
Transaction volumes on the nickel market of the London Metal Exchange (LME) are rising – an expression of a gradual return in confidence in the only available nickel price reference world-wide that is still widely accepted. It would appear that the wounds caused by the market turmoil of March 2022 are slowly healing. But this has not come about as a matter of course, as the Exchange and regulators have worked hard together, and continue to do so in order to make the London Exchange safer and therefore, more resilient to such stress.

Not only has the number of traded futures contracts risen steadily, but also the nickel price has shown a clear upward trend since the middle of February. And this has been despite all the gloomy predictions about the market weakness due to the presumed excesses in supply. At the beginning of February prices were just below USD 16,000.00/mt, but now the industrial and battery metal is trading at prices just below USD 18,000.00/mt. The reason being given is that the nickel producers outside of Indonesia have cut supplies to the market and in Indonesia the award process for mining licences has stalled. The traditional nickel producers are not faring very well at low price levels, as the example of the French producer Eramet shows.

The news agency Reuters has reported that even the French government had to intervene and take action to reduce the debt of Société Le Nickel (SLN) in New Caledonia. But the (hopefully) not just temporary shutdowns are clearly supporting the price. After a new sanction package by the United States of America against Russia was announced, it was feared that sanctions could now have a definite impact on Russian nickel producers and their shareholders. There were at least some parallels in the timing and presumably also the content of the announcement and the speed of the upwards price trend.

In the meantime it is, however, clear that Russian nickel production is, once again, not in the focus of sanctions. Yet, the price rise continues. At this point, it can be mentioned that even without sanctions, Russian nickel is hardly traded at all now in Western countries and with good reason too. At the end of January there still about 36% of Exchange nickel stored in the LME warehouses was of Russian origin.But it could be quite difficult, depending on the warehouse location, to find a buyer for it.

Is the surplus actually a deficit?
There is currently a discussion, initiated by analysts of the Macquarie Bank, among others, about the extent to which nickel could actually even turn unexpectedly into a deficit this year. This would be possible if the output in Indonesia would grow slower than expected due to the very sluggish allocation of mining rights. And if that is not enough, recently in the Australian Financial Review, the same bank expressed the view that there are serious flaws in the Chinese stainless steel production data. The amounts recorded in the Chinese statistics seem to be significantly lower than actual production. The model’s assumed nickel consumption has to be corrected upwards.

It can only be speculated about the reasons for the discrepancy, but, it has to be especially well known in China that one can only trust the statistics which have been falsified by oneself. A bigger demand for stainless steel in China would also please the great Xi Jinping, for there is a strong emphasis on his person in particular in the model of the Chinese government, but a shadow has been cast on the President due to the continuing economic weakness in the Land of the Rising Sun. For if there is only one leader in charge, then he is responsible, in the eyes of the people, not only for positive developments.

From a bird’s eye view there is probably quite a simple explanation for the development of the nickel market which includes all the data mentioned above: the Exchange does not actually trade in the present, but in the future. And the professional market participants seem to judge the future of global economic development much better than the Europeans and, in particular, the Germans feel at the moment. Head high, looking forward, recovery is on its way, hopefully also for Europe if politicians do not spoil things.

Will a difference soon be made between green and non-green electric vehicles?
Not only is climate friendly charging important in the transition to electric mobility but also climate friendly manufacturing. A genuine climate change can only function when climate friendly raw materials are already used at the beginning of the production chain. The extraction of nickel for nickel based lithium-ion batteries is playing an important role here. (In contrast to other battery types, nickel based batteries have a relatively long range).

While CO2 intensive nickel production flourishes in Indonesia and the market is flooded with refined and semi-refined nickel, Australia (and France, see above) is compelled to financially support the comparatively lower CO2 production because of the resulting fall of nickel prices. The solution is, however, more one of tinkering with the symptoms rather than the urgently needed restructure of the global nickel industry into “green” and “dirty” sectors.

The Australian Minister for Resources, Madeleine King, has put nickel on the list of critical minerals, which means miners and producers gain access to a share of the 4 billion Australian dollars which the government has allocated to support the extraction of minerals needed for the energy transition. The relatively low nickel prices threaten Australian nickel companies, six of which since December have announced production cuts or have already entered into maintenance breaks. On the 15th February, BHP Group, one of the world’s largest mining companies, announced a write-off of 2.5 billion dollars for its nickel business in Western Australia.

The question is how the market can be divided up so that the more environmentally friendly nickel can be at a premium compared to the “more dirty” metal from Indonesia, which is found not just in batteries, but is also used in stainless steel. The LME is in no hurry to introduce a two-tier system for nickel and other metals, but, according to recent reports, will at least increase transparency regarding the carbon footprint. And the “scrap bonus” for stainless steel scrap is still a long time coming. End users of energy metals, such as car manufacturers, are also hesitant and in reality do look more at the price rather than the environment. Australia’s support for its nickel mines is a short-term solution, but a long-term solution is needed. And this must encompass the global inclusion of the carbon footprint in the price mechanism for nickel in all its various forms (class 1, class 2 and stainless steel scrap).

According the Minister Madeleine King, Australia is already holding important talks with international partners in the USA, Canada and the EU, in order to ensure that the high standards which apply in Australia for mining and production of nickel and other critical minerals are reflected in prices on international markets in the future.

Also, Mike Henry, CEO of BHP Group, emphasises that the political framework in Australia will play an important role in decision making for future investments. Overall, Henry calls for a long-term perspective and supporting political measures in order to strengthen Australia’s position in the global raw material market.

To a certain extent, the western world has to decide if it really wants a supply chain for energy transition which has only a small impact on climate, and whether premiums can be realised for truly green products in the long-term.

“Lead markets for green industrial products”
The ecological transition of the steel industry to less carbon intensive or carbon neutral manufacturing routes is a declared goal of the German steel industry. It is, however, not standing alone here: In 2018 a “Steel Alliance” was already formed at state level, comprised of eleven steel producing federal states: Baden-Württemberg, Bavaria, Brandenburg, Bremen, Hamburg, Lower Saxony, North Rhine-Westphalia, Saarland, Saxony, Saxony-Anhalt and Thuringia. At the end of January, this alliance passed a resolution. The alliance urges the creation of appropriate – political – framework conditions, which enable the industry to make the transition and prevent a massive loss in value creation and employment. The Federal government is, therefore, being addressed directly: steel production in Germany should be strengthened and a better investment perspective should be created.

Specifically, the alliance calls for the creation of “level playing fields”, much quoted in recent times. Aspects which play a part here are international competitive electricity prices and at the same time green electrification. The latter is especially indispensible for the decarbonisation of steel making by those electric steel plants, which mainly use the carbon neutral recycling material of scrap. Furthermore, trade protection mechanisms also belong to the “level playing field”. The Carbon Border Adjustment Mechanism (CBAM), according to the alliance, must offer the European steel industry an effective carbon leakage protection.

For this purpose, the extended application of the CBAM to downstream products made of iron and steel has to be examined. This means it is not just about the import of sheets and strips but also products containing steel and stainless steel, such as sinks, dish washers or washing machines, etc. Further foreign trade protection can be achieved through a far-reaching application of anti-dumping and anti-subsidy measures at European level, as well as a possible continuation of the “safeguards” introduced in 2018 on corresponding imports.

And last but not least, there is also the call to stimulate demand: “green steel” carries a premium which is currently in the low three digit range. Accordingly, the steel alliance calls on the Federal government to “establish as quickly as possible lead markets [i.e. state created and/or subsidised], for green industrial products” in Germany and at EU level. Of course, processors and consumers have to follow the clichés about climate protection and also the demand for climate friendly steel at slightly higher prices.

DecarbInd: A decarbonisation road map for the steel industry
The “DecarbInd” study carried out by the Fraunhofer Institute for Systems and Innovation Research (ISI) on behalf of the German Federal Environment Agency between 2020 and 2022 takes a more concrete look at approaches and measures for the decarbonisation of industries based in Germany. In separate sub-projects two greenhouse gas “heavy-weights” were explicitly analysed: on the one hand, the cement industry, which, according to the report is responsible for 2.7% of German greenhouse gas emissions. On the other hand is the steel industry, responsible for approximately 5% of all German emissions and around 20% of industrial emissions. The final reports for the study are now available.

Based on the vision that the German steel industry will be decarbonised by the year 2025, while remaining globally competitive and enjoying a high social reputation, three core aspects were identified that have to be to addressed to achieve this vision: (a) the conversion of steel production routes from the conventional production in the blast furnace process to production via so-called direct reduction using green hydrogen, (b) the increase of scrap usage in steel production and (c) the decarbonisation of electric steel production (through green electrification, see above).

The increase in the usage of scrap in steel production is, however, according to the study, already at its limits: there is a lack of scrap in suitable quality, partly because improved processing is not always viable, or partly because of limited recycling possibilities of products. Measures to make improvements could be, for example, the sponsorship of business models for better processing, R&D funding for processing and sorting technologies, or for example appropriate product regulation. Basically, however, scrap consumers also have to be willing to pay the higher outlay for better processing.

In this connection, it is regrettable that the recycling industry and its associations were not part of the core stakeholder group in this study, even though scrap, as a secondary raw material plays such a central role. Finally, recyclers are professionals and the driving force in the supply and processing of scrap, the sustainable recycling raw material.
(Link (in German):

Indonesia: Industrial policy focussed on nickel
In the past few weeks Indonesia has been in the headlines more frequently again in regard to industrial metals. This should not really be a surprise as the South Asian country has developed into an important mining and commodity player: Bauxite, from which primary aluminium is extracted, copper and tin and, of course, nickel. Between 2020 and 2023 Indonesia has more than doubled its nickel output, and, according to Macquarie analysts, was responsible in 2023 for about 55% of global nickel production, in total about 3.4 million tonnes. In this respect, old dependences were reduced in Europe, but then new ones were automatically created.

The government and ministries are aware of this important role: at the beginning of March, a representative of the Indonesian government was quoted as saying that production and deliveries should be kept high enough to prevent prices increasing too much: it is especially important that e-mobility and the demand for nickel based lithium-ion batteries is kept competitive in comparison to low-cost alternatives such as lithium-iron-phosphate batteries.

In this context it is also understandable that the news about the delay in the processing and issuing of mining licences has an impact on the sentiment in the nickel segment and causes (short-term) worries about possible shortages. Indonesian mine operators have to submit a work plan and cost budget, called RKAB (Indonesian: Rencana Kerja dan Anggaran Biaya). Last year the government had announced a change to the system whereby the corresponding permits would now be valid for three years instead of just one year. This change has led to the current delays.

Altogether, the industrial policy focussed on nickel is the proudest achievement of the government, according to the British “Economist” recently. Indonesia’s development, especially in the nickel segment goes hand in hand with the presidency of Joko Widodo. This will now end, in line with the constitution, in October 2024. Elections were held in February and the winner and, therefore, the designated successor of Widodo, Prabowo Subianto, already made a clear commitment to a continuation of this policy. Also in focus: expansion of the value chain to include electric vehicle batteries and electric vehicles. To achieve this, and reported here previously, essential foreign investment will be required from other countries, and not just from China.

Directional attributes are a product of chance
This edition concludes with a slight digression into the origin of certain terms. This publication has already criticised that certain content related descriptions are problematic in terms of everyday language usage. Over time, this can result in a (moral) inference which disqualifies certain words for use. For example, it has been criticised that one talks of “green” steel. In Germany there is quite a lot of discussion about whether everything which is actually green is also necessarily good. Also recently, there have been many demonstrations against the “Right”. However, the important motives of the demonstrators were not against a general statement of direction, but about a political, sometimes dogmatic, direction, above all on the very extreme edge of the spectrum.

An interesting explanation of this can be found on the website of the German Federal Parliament, the Bundestag, for also here – seen from the perspective of the Parliament President – the more rightwing conservative liberal parties really do sit on the right and the more social democratic leftwing parties sit on the left. This seating arrangement of the parliamentary groups can be traced back to the French Revolution. In 1814, the nobility was placed on the right of the President in the Chamber of Deputies, while the so-call “third estate”, i.e. the bourgeoisie, was allowed to sit on the left. As the Bundestag writes in Chapter 7.2 about the seating arrangement, this allocation of seats was initially only based on protocol, but has over time evolved into a description of the political parties. The Bundestag administration points out that the parties have developed into integration parties in recent decades, which is why the right-left scheme and the seating arrangement in parliament is not an indication of the policies currently represented by these parties. Or, in other words, if, after the fall of Napoleon Bonaparte events had happened differently, then demonstrations may have perhaps been directed against the “Left”. More precision and clarity in language is certainly helpful for orientation.


LME (London Metal Exchange)

LME Official Close (3 month)
March 8, 2024
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon. Ask
LME stocks in mt
  February 9, 2024 March 8, 2024 Delta in mt Delta in %
Nickel (Ni) 72,120 73,590 + 1,470 + 2.04%
Copper (Cu) 136,825 112,800 – 24,025 – 17.56%
Aluminium (Al) 527,350 580,050 + 52,700 + *9.99%

Oryx Commodity News

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