Nickel prices started 2021 on the up, at ~US$16,600/t, as supply continued to be built out in Indonesia and hoovered up by China—largely from Chinese-owned and operated capacity developments in the country—to fill the gap left by Indonesia’s raw ore export ban, which came into place at the start of 2020.
While the emergence of nickel
demand growth from the EV sector has added an element of excitement to nickel
markets, with the sector’s demand for a range of higher-grade nickel products, the
main driver is still demand from the stainless-steel industry. 2021 saw one of
the world’s largest nickel and stainless-steel producers, Tsingshan, throw a
curveball to the market, announcing it would begin producing battery-grade
metal from its significant stainless-steel-focused products.

Tsingshan’s announcement in March that it had secured
offtake agreements for battery-grade nickel matte with CNGR and Zhejiang Huayou
saw the exchange nickel price take a hit, declining nearly 20% in a week, as
the market digested the signal that there may be no shortage of supply. After
plateauing for a month or so, the price continued its upward march on strong
demand from the stainless-steel sector and growing interest from the battery
sector, and as the global economic recovery started gaining traction. Besides
the March shock, the nickel price has largely been on the up through the year,
assisted by production disruptions in the June quarter, rising 14% and expected
to finish the year at ~US$19,800/t. The full-year average price is expected to
be ~US$18,370/t, a 33.4% rise from the 2020 average.
With nickel in short supply as capacity to mitigate
the loss of Indonesian ore to Chinese smelters continues to be built out and demand
rises from the battery sector, the commodity maintained its reputation for
price volatility. A number of incidents over the year unsettled the market,
though none had an impact as large as Tsingshan’s nickel matte announcement.
Vale struggled with strikes and maintenance at its Sudbury operations and
unplanned maintenance at its Clynbach refinery, while Nornickel suffered
flooding events at two of its main mines.
Despite the late-year easing of China’s largely
unrelenting economic growth, production struggles—particularly in the June quarter—have
seen AME’s finished nickel market balance shift to a deficit of 128kt. This has
helped nickel to a strong finish, price-wise, at the end of the year. Class 1
nickel specifically is considered to be in more serious deficit as the industry
plays catch-up to the emerging battery sector.
LME nickel stock levels have been on a steady
decline since April this year. The expected deficit has seen stocks decline
from an annual high of ~260kt to head towards just 100kt. The declining stock
levels are providing additional support to current price levels.
Mined
Nickel Supply
Global mined nickel supply
will be ~3,210kt for the full year in 2021, representing a massive rise of
25.8% from 2020. The increase is almost entirely due to developments in Indonesia,
which has picked up where it left off in 2019 after a blip in 2020 saw a
decline in production following implementation of the ore export ban. Further
consolidating its place as the largest producer of mined nickel, the country is
expected to produce 1,115kt over the year, an increase of 47.5% from 2020.
Outside Indonesia, the
Philippines, New Caledonia, Russia, Australia and Canada remained the other significant
producers of mined nickel, though their cumulative production now equals only
20% more than Indonesia’s. These major producers all increased production over
2021. Of note, Canada saw the start up of an expansion at Vale’s Voisey Bay
operations, Australia’s Ravensthorpe continued its return to full production, and
the Philippines continued working hard to meet demand from China following
Indonesia’s departure from the seaborne ore market.
Nornickel had a rough start to the year, with extensive flooding in its
Oktyabrsky and Taimyrsky mines impacting production through most of the first
half of 2021. Despite suffering a major flooding event which saw the source of
over a third of the company’s ore production cease operations for a number of
months, the company managed to increase total production from that of pandemic-affected
2020. The company also suffered the collapse of an ore transfer point at its
Norilsk concentrator, which also hampered production in 2021.

Finished
Nickel Supply
Finished nickel supply is
forecast to increase 2.5% in 2021 to 2,663kt. In line with demand sectors, the
breakdown of finished nickel products remains dominated by stainless steel
feedstocks, which account for ~75% of nickel demand. Recent history has seen
the rise of Indonesia as a major player in producing both nickel feed and stainless
steel at co-located mills.
China has been overtaken as
the largest producer of finished nickel, as a significant proportion of its
production has essentially been offshored since the Indonesian ore export ban.
That being said, the country is still expected to produce an estimated 658kt of
finished nickel products in 2021. However, this represents a 12.3% decline from
the country’s 2020 output, and in the same period, production from Indonesia
will have surged 33.8% year on year to 889kt.
Indonesia has increased its production of finished nickel products by ~581%
in the last five years as it continues its conscious effort to add value to its
abundant nickel ore resources and develop a domestic processing industry. This
trend is expected to continue into the future, with the country targeting the dominant
demand source, the stainless-steel sector, as well as making a significant
contribution to the emerging battery materials industry. Looking to move
further downstream, Indonesia has also developed complementary stainless steel
production capacity and has ambitions to be a major player in the battery and
eventually the EV space. In a shift to the battery sector, 2021 saw the start
of production from Indonesia’s first and second HPAL operations, the 37ktpa (contained
Ni) Lygend HPAL on Obi Island and the 60ktpa Huayue HPAL in the Morowali
Industrial Park, both of which produce nickel intermediate for nickel sulphate
plants.

Nickel
Demand
Rebounding strongly from pandemic-plagued
2020, finished nickel surged 17.4% in 2021 to 2,800kt. Demand growth has—volumetrically—been
largely driven by economic stimulus from China, and increasingly from the rest
of the world. This economic stimulus has had a significant infrastructure and
construction focus, increasing demand for stainless steel. The automotive
sector has lagged in its recovery to a degree amid constraints caused largely by
the global chip shortage.
Though no longer the largest
producer of finished nickel products, China remains by far the largest consumer
of the material. The country is expected to consume more than half of global
production in 2021, a whopping 1,560kt of finished nickel products. Consumption
comes from its monster stainless steel industry and, increasingly, from the
production of batteries driven by domestic uptake targets for EVs.
The distant second-, third-
and fourth-largest consumers of finished nickel are Indonesia (392kt), Japan (164kt)
and the US (117kt). All three currently produce significant volumes of
stainless steel. While Japan and the US use their output to supply their domestic
automotive sectors, Indonesian stainless-steel product is largely shipped to
China. With the increase of Indonesian stainless-steel capacity, the country
has seen its finished nickel demand jump 87% over 2021. In the future, backed
up by active developments, Indonesia will look to target an increasing
proportion of its nickel capacity towards the battery materials market.
Stainless steel and alloying
applications have dominated, and will continue to dominate, nickel demand, if
not the narrative.

Battery
Power
The rise of electric
vehicles has been all the rage in nickel demand narratives over 2021, with more
concrete movements seen in the space than were seen in 2020. This has increased
interest in higher-quality nickel products which can be further processed to
nickel sulphate. While the majority of capacity buildout within Indonesia
through 2020 and into 2021 remained focused on supplying the stainless-steel
sector, a number of battery sector developments have since occurred.
Beyond Tsingshan’s plans to
produce nickel matte from the output of its ferronickel capacity, 2021 saw the
start-up of Indonesia’s first HPALs on Obi Island and in Morowali Industrial
Park, with a respective 37ktpa and 60ktpa of contained nickel production as
mixed hydroxide precipitate (MHP).
The other major news on the supply side of battery-focused production was
the first nickel sulphate production from BHP’s Nickel West refinery at
Kwinana. The 100ktpa plant produced its first NiSO4 crystals in October this
year. In Finland, Terrafame also commissioned its 170ktpa NiSO4 facility, the
largest nickel sulphate production plant in the world, which is squarely
targeted at the European EV sector.

While AME considers nickel
sulphate a longer-term prospect as a significant volumetric demand driver of
nickel, this hasn’t stopped a number of projects targeting the market from
being announced or progressing over 2021. A third HPAL at Morowali is nearing
completion, and Eramet, BASF and Vale have all declared their intention to
undertake developments.
Existing and expanding
global battery production capacity will provide a ready market and upside
potential, but there remains the possibility that the initial hype surrounding
battery materials—which has seen a rash of projects announced—and EV uptake may
see marginal projects approved, leading to over-supply conditions early in the
industry’s development. Current efforts to increase the proportion of nickel in
battery configurations may help to absorb this supply.