China and Indonesia Brace for Nickel Production Cuts Amid Price Decline
In a decisive move to counter the recent downturn in nickel prices, China and Indonesia are anticipated to slash their nickel production by at least 100,000 metric tons this year. This strategic reduction comes as producers aim to mitigate losses triggered by the metal's price slump, vital for manufacturing stainless steel and electric vehicle batteries. Traders and analysts suggest that even more substantial cuts may be necessary to eliminate the market's surplus and elevate prices beyond merely stopping losses.
The nickel market experienced a significant surge in 2022, with prices reaching an unprecedented high of over $100,000 per ton, spurred by anticipated supply shortages from Russia amidst its military actions in Ukraine. However, the price has since plummeted to around $16,000 a ton, following a substantial increase in production from Indonesia, which last year contributed to more than half of the global mined nickel supply of approximately 3.4 million metric tons.
The global nickel supply has been further pressured by economic downturns reducing demand, leading Western mining giants, including BHP and other entities, to either halt operations, delay projects, or scale down production levels. Despite these measures removing over 230,000 tons or roughly 6% of this year's potential supply, prices have yet to see a significant recovery.
Industry insiders argue that to rebalance the global nickel market and prevent ongoing financial losses, deeper cuts exceeding 250,000 tons are necessary. The current oversupply is particularly pronounced in nickel pig iron (NPI), a less expensive substitute for high-grade nickel in stainless steel production, which predominantly originates from China and Indonesia, making up 70% of the global supply.
Analysts indicate that NPI production costs range between $10,000 and $11,000 per ton in Indonesia and $12,000 per ton in China, challenging profitability given the current NPI market price of around $11,000 per ton. High operational costs, including raw materials, electricity, and coal, have rendered many Chinese NPI mills unprofitable.
