Nickel Prices Under Pressure Amid Market Surplus and New Discovery in Papua New Guinea

Nickel prices are expected to remain under pressure due to a substantial market surplus and the recent discovery of nickel at the Wedei prospect in Papua New Guinea (PNG), according to analysts. Research agency BMI, a unit of Fitch Solutions, has revised its 2024 forecast for nickel prices down from $18,000 per tonne to $17,300 per tonne as oversupply continues to weigh on the market.

The Australian Office of the Chief Economist (AOCE) noted that production cuts have failed to boost nickel prices significantly. "Despite prices rebounding in the June quarter of 2024, continued oversupply has driven prices down in the September quarter," AOCE said. The London Metal Exchange (LME) closing price for nickel dropped from $17,040 on June 28 to $15,503 on July 25, the lowest level recorded in 2024, illustrating the challenges of a persistently oversupplied market.

AOCE reported that the average nickel price in the September quarter was $16,200, roughly 14% lower than the previous quarter. It forecast the LME nickel price to average around $17,100 per tonne in 2024. Trading Economics highlighted that field program results from the PNG project indicated a significant presence of nickel, raising expectations of increased supply.

BMI expects minimal price growth for the rest of 2024, predicting a second consecutive annual decline, with average prices dropping by 20.2% compared to the 2023 average of $21,688 per tonne. AOCE added that nickel prices are likely to remain volatile due to mismatches in short-term supply and demand. Nickel prices briefly rallied earlier in the year, reaching a high of $21,615 on May 20, but have since fallen back to $16,996 by September 27, as the optimism faded.

Further complicating the supply outlook, ING Think, the economic analysis wing of Dutch multinational ING, reported that output guidance for the Indonesian nickel mine Weda Bay was cut by 29% due to the Indonesian government approving significantly fewer ore sales than expected for the next two years. This development suggests further instability in supply from Indonesia, one of the largest nickel producers.

While some production cuts outside of China and Indonesia are expected to provide limited support, weakening demand is anticipated to keep nickel prices subdued for the remainder of 2024, according to AOCE. BMI's outlook for Indonesian refined nickel production remains optimistic, indicating continued growth momentum. However, this expansion is likely to deepen the market surplus, putting additional downward pressure on prices.

Nickel inventories at major exchanges have increased by 90% since the beginning of 2024, further underscoring the extent of market oversupply. Growth in production from China and Indonesia has outpaced global demand, adding to inventory levels and pressuring prices. Despite these challenges, BMI noted potential upside risks to nickel prices, including possible supply disruptions and a weakening US dollar, which could provide a price floor.

ING Think also mentioned that Indonesia is facing severe ore shortages due to issues with government permits, which has forced smelters to pay high premiums for raw material procurement since the beginning of the year.