Two of the world’s top nickel producing countries, Indonesia and China, are planning output cutbacks this year to cap losses from the slide in the electric vehicle battery metal’s prices.
Nickel prices had surged in 2022, peaking at a record above $100,000 after expectations of reduced supplies from major producer Russia following its invasion of Ukraine.
Now, the metal is trading around $16,000 a ton after production rose in Indonesia, which last year accounted for more than half of global mined supplies, estimated at around 3.4 million metric tons.
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Amid the slide in nickel prices, Indonesia is now set to reduce the metal’s output by at least 100,000 metric tons seek to limit losses.
China, the seventh largest nickel producer in the world, is mulling similar production cuts this year.
Traders and analysts say further cuts would be needed if producers wanted to boost prices and remove the surplus from the market, rather than just halt losses.
Cuts so far have removed more than 230,000 tons or around 6% of potential supply for this year, according to Macquarie analysts. This was not enough to boost prices.
More cutbacks needed
Cuts so far have removed more than 230,000 tons or around 6% of potential supply for this year, according to Macquarie analysts. This was not enough to boost prices.
Consultancy Benchmark Mineral Intelligence estimated cuts of more than 250,000 tons were needed to balance the global nickel market this year.
Most of the oversupply and high inventories are in nickel pig iron (NPI), a cheaper alternative to high-grade nickel for the production of stainless steel, analysts said. China and Indonesia account for 70% of global supplies of nickel, most of it NPI.
“If we take out the 3% disruption allowance or 100,000 tons, around another 100,000 tons needs to be cut to balance the market,” Jim Lennon, a strategist at Macquarie, said.
“With the NPI price around $11,000 (a ton), there should be supply adjustments in China and Indonesia,” he added.
Lennon estimated that NPI production costs are $10,000-$11,000 a ton and $12,000 a ton in Indonesia and China respectively, meaning it is very hard to make a profit.
With raw material costs, including nickel ores, electricity and coal, making up to 73% of NPI prices, many NPI mills in China have become unprofitable, according to Bank of America analysts.
- Reuters, with additional editing by Vishakha Saxena
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