Nickel price bulls gamble on tight LME supplies

Benchmark nickel on the LME touched $24,435 a tonne on Thursday, a gain of 14% so far this year and the highest since August 2011.

Demand for nearby delivery of LME nickel has created a hefty premium for the cash over the three-month contract which hit a 13-year peak of $495 a tonne on Tuesday. It was last at $233 a tonne compared with $123 at the end of December.

Worries about availability come from inventories in LME registered warehouses which at 94,830 tonnes have dropped 65% since April last year. Cancelled warrants — metal earmarked for delivery — at 49% suggest more nickel will be delivered out.

“This is an LME event not a nickel market event. Nickel pig iron in China is trading at up to a $4,000 a tonne discount to LME nickel,” said Macquarie analyst Jim Lennon.

“Briquettes are coming off the LME, but there is no money to be made converting them into nickel sulphate, which is also trading at a discount to LME prices in China having been at a $2,000 a tonne premium in November.”

About 59% of total LME stock is bagged briquette, easily crushed into small particles and dissolved in sulphuric acid to make nickel sulphate used for EV batteries.

Much of the briquette leaving LME warehouses has headed to top consumer China, which dominates the electric vehicle battery supply chain.

“China’s refined nickel imports surged 97% to 257,495 tonnes from 130,716 tonnes last year, prompting significant draws in LME nickel briquette inventory,” said BNP Paribas analyst David Wilson. “Briquette demand was driven by a 150% increase in electric vehicle production in China last year.”

Wilson expects demand at 3.03 million tonnes this year, a gain of 6% from 2021, and a surplus of 29,000 tonnes after a deficit of 76,600 tonnes last year.

Nickel prices on the Shanghai Futures Exchange too have rocketed to their highest since contract launch in 2015 due to shortages of material, such as that produced by Russia’s Norilsk Nickel, that can be delivered against the ShFE contract.