There has been a continuous decline in nickel stocks, which has lent support to nickel prices to a great extent. Falling stocks, along with strong demand from the stainless steel sector and expectations of strong demand from electric vehicles has fueled strong optimism among large investors and buyers of the industrial metal.
Currently, the supply side seems to be falling back on demand, as nickel has just recently recovered from a prolonged period of low prices (almost below cost of production), which forced many mines to cut down or completely shut down production. With prices now starting to show positive signs, we could see nickel production increase over the next two-three years. But at the same time, nickel supply is likely to face a new phase of demand from the EV vehicle battery makers. With many automotive companies already announcing plans for EV launches in the next 2 to 5 years, nickel demand is most likely to outstrip supply. The global economy at this point of time and coming year is expected to remain strong, which would result in higher stainless steel demand.
These factors taken together make us believe that price of nickel needs to and will rise higher.
Just over the last five months, the supply of nickel at the LME’s warehouse has dropped around 20%. If we add another 10% to 20% decline in nickel inventories in year 2018, we could easily see prices rising to US$18400-$18,700. According to UBS, 15 million electric vehicles will be on the road by 2025, lifting nickel demand by 300,000-900,000 tonnes, or by 10-40% of the current market.
Nickel inventories now stand at 294,800 tonne level, down from 296,316 as on 25th May 2018 and 374,136 tonne as on 22nd December 2018. Although inventories are falling on a whole, the cancelled warrant ratio for Nickel has remained at around 30% levels, same as six months back. Cancelled warrants stood at 120,756 tonne level on 22nd December 2018, but now stand 86,826 tonnes, indicating the quantity of industrial metal marked for delivery to buyers has reduced, which actually means that demand has slowed down.
I am not an expert at analyzing too much in depth of these numbers, as not many details are available except for these numbers. But I have a strong belief that large trading houses and speculators have already placed huge bets on nickel, amid growing optimism over the EV growth story and expected rise in demand for nickel. Overall, till the time, we don’t see signs of weakness in the US or Chinese economy in the coming six months, it bodes well for all metals, and especially nickel.