China and Indonesia plan to cut their nickel production by at least 100,000 metric tons this year in an effort to minimise losses after the price of the metal, which is used to make stainless steel and electric vehicles, fell sharply, Reuters reported on Monday citing traders and analysts.
They said that in order for producers to increase prices and eliminate the excess from the market as opposed to merely stopping losses, more cuts would be required.
After the market withdrew its bets on lower prices due to expectations of reduced supplies from major producer Russia following its conflict with Ukraine, nickel prices spiked in 2022 and peaked at a record above $100,000.
After production increased in Indonesia, which last year accounted for more than half of global mined supplies, estimated at around 3.4 million metric tons; Indonesian supplies accounted for 30 per cent of the total in 2020. At this point, the metal is trading at about $16,000 per ton.
Western miners, including BHP, which had made nickel central to its green strategy, and six other companies mothballed assets, delayed projects, or cut production as the excess supply exacerbated the effects of economic weakness that reduced demand.
According to Macquarie analysts, cuts have eliminated more than 230,000 tons, or about 6 per cent of the potential supply for this year. This did not raise prices sufficiently.
An unnamed source at a global producer further told Reuters that more significant cuts would be required to avoid financial losses.
According to Consultancy Benchmark Mineral Intelligence, this year’s global nickel market balance would require reductions of more than 250,000 tons.
Analysts noted that 70 per cent of global nickel supplies, mostly from China and Indonesia, are in nickel pig iron (NPI), a less expensive substitute for high-grade nickel used in the production of stainless steel, and that NPI accounts for the majority of the oversupply and high inventories.
“If we take out the 3 per cecnt disruption allowance or 100,000 tons, around another 100,000 tons needs to be cut to balance the market,” said Jim Lennon, strategist at Macquarie.
“With the NPI price around $11,000 (a ton), there should be supply adjustments in China and Indonesia,” he added.
According to Lennon, the cost of producing NPI is $10,000–$11,000 per ton in Indonesia and $12,000 per ton in China, respectively. This means that turning a profit is exceedingly difficult.
Several NPI mills in China are now losing money, according to Bank of America analysts, since the cost of raw materials, which includes coal, electricity, and nickel ores, can account for up to 73 per cent of NPI prices.
CEO of Anglo-American Duncan Wanblad questioned whether nickel that could be used in batteries could fetch a higher price.
“I do wonder whether there is a potential bifurcation in nickel cost curves or nickel that goes into stainless steel might be very different from nickel that goes into battery applications,” Wanblad told Reuters on the sidelines of the African Mining Indaba last week.
“Therefore, if that’s true, then there has to be two different nickel prices to deal with both of those,” he added.
Nickel is extracted by Anglo from its platinum group metals (PGMs) business in South Africa and at its Barro Alto mine in Brazil.
According to traders, western miners may need to reduce production if prices don’t rise and manage assets in Canada, Australia, and New Caledonia that are producing at a loss.
