Nickel Market Faces Pressure Amid Growing Surplus and New Discoveries
Nickel prices are expected to remain under pressure as the market struggles with a substantial surplus and new supply prospects. Analysts point to the recent discovery of nickel at the Wedei prospect in Papua New Guinea (PNG), which has contributed to the challenging market conditions by increasing production and exacerbating oversupply concerns.
“Our nickel price forecast for 2024 is being revised down from a previous $18,000 per tonne to $17,300 per tonne, as the market faces a significant surplus,” said BMI, a unit of Fitch Solutions. The Australian Office of the Chief Economist (AOCE) also noted that production cuts have not provided a sustained boost to prices. “Despite nickel prices rebounding in the June quarter of 2024, continued oversupply has driven down prices in the September quarter,” it said.
Nickel prices on the London Metal Exchange (LME) have reflected this oversupply trend. The closing price dropped from $17,040 on June 28 to $15,503 on July 25, marking the lowest level in 2024. The estimated average price of nickel in the September quarter was $16,200, representing a 14% drop from the previous quarter, according to the AOCE. Looking ahead, the AOCE expects the LME nickel price to average around $17,100 per tonne in 2024.
The Trading Economics website highlighted the significance of the field program results from PNG, which indicated substantial nickel deposits, potentially increasing global supply. BMI anticipates minimal price growth for the remainder of 2024, projecting average annual prices to decline by 20.2% from the 2023 average of $21,688 per tonne.
Nickel prices are also expected to remain volatile due to short-term mismatches in supply and demand. Earlier this year, nickel saw a brief rally driven by supply concerns, with prices reaching a year-to-date high of $21,615 per tonne on May 20. However, after peaking in May, prices reversed their gains, falling to $16,996 per tonne by September 27, according to BMI.
Additional factors are affecting the market. ING Think, the economic analysis arm of ING, reported that production guidance for its Weda Bay nickel mine in Indonesia has been cut by 29% due to regulatory issues involving ore sales. The Indonesian government recently approved significantly fewer ore sales than initially projected, contributing to a production shortfall.
While recent production cuts outside China and Indonesia are expected to provide some price support, weakening demand is likely to keep nickel prices subdued for the remainder of 2024. BMI remains optimistic about Indonesian refined nickel production, noting that growth momentum remains strong, which could further contribute to the surplus.
Nickel inventories at major exchanges have risen sharply, increasing by 90% since the beginning of 2024, driven by production growth in China and Indonesia that has outpaced global demand. Despite downward pressure on prices, BMI identified potential upside risks, such as possible supply disruptions and a weakening U.S. dollar later in the year, which could provide a price floor and prevent significant declines from current levels.
On the supply side, BMI expects a significant increase in global refined nickel production in 2024, with output growth driven primarily by China and Indonesia. The AOCE added that while a significant reduction in output among western producers has occurred, emerging and marginal Indonesian producers are likely to limit any price increases. The LME nickel price is expected to average $17,400 per tonne in 2025 and $17,800 per tonne in 2026.
Indonesia's growing capacity to convert its abundant low-grade nickel into high-grade Class I nickel is also expected to exert significant pressure on LME nickel prices, BMI concluded.
