Nickel continues to be one of the most volatile commodities in the world. After soaring about 150% over just a few months in early 2022 on a massive short squeeze, and then retracing all of those gains over subsequent months due to remarkably friendly treatment accorded to the short investor by regulators and banks, the metal has declined around 20% so far in 2023.
In 2023, Indonesian suppliers continue to produce far more nickel than global demand dictates. Indeed, the International Nickel Supply Group projects a 2023 global nickel market surplus of 239,000 tonnes, the largest in at least a decade. This builds on a 105,000-tonne excess net supply in 2022.
Important to note: the surplus in 2022 occurred and the overage projected for 2023 should occur despite strong demand growth. Demand increased 6.1% in 2022 and should grow at about the same pace in 2023. Extraordinary growth in the usage of nickel in electric vehicle (EV) batteries offset a decline in nickel consumption in the stainless steel industry last year. The global output of stainless steel, which utilizes about 75% of all nickel produced, fell 5.2% in 2022, per the World Stainless Association.
To illustrate the rapid increase in the amount of nickel deployed in the EV industry, the research firm Adamas Intelligence reports that more than 17,000 tonnes of nickel were used in EV batteries in February 2023, up 19% versus January 2023 and up 47% compared with February 2022.
READ: Sprott Launches First-Ever ETF For Nickel Miners
As an aside, the price of lithium, another EV battery metal, has declined even more than nickel, a drop of around 60% over the first four months of 2023. Since lithium and nickel comprised about 13% and 21%, respectively, of the cost of a battery cell in 2022 (per Bank of America), the lower prices will offset some margin pressure EV makers will feel in 2023 from what is now an intense price war started by Tesla, Inc. (NASDAQ: TSLA).
The 2022 massive nickel short bet was by China’s Tsingshan Holding Group and its controlling shareholder, Xiang Guangda. By March 2022, Tsingshan had accumulated an approximate 150,000-tonne short nickel position, equivalent to one-eighth of all outstanding nickel contracts. Nickel prices spiked to US$100,000 per tonne on March 8, 2022 as Tsingshan faced mounting margin calls on its short position. The company faced a crippling loss of roughly US$10 billion.
The London Metals Exchange at that point stepped in to retroactively cancel 9,000 trades worth approximately US$4 billion, transactions reached by willing buyers and sellers at the highest prices in the name of market stability.
Information for this briefing was found via Trading Economics and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
