LONDON: Elon Musk faces one thing of a actuality check after his name this week for more nickel mines to feed the batteries that Tesla and different carmakers must energy their electrical automobiles.
The market’s fortunes stay beholden to not the battery provide chain however to the a lot bigger chrome steel sector, and nickel costs are hovering round ranges which are more prone to pressure out current operators than entice new ones.
And it’s concern in regards to the state of the chrome steel market that’s dampening nickel’s prospects.
“Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way,” the electrical automobile company’s charismatic chief informed a post-earnings convention name.
Musk’s enthusiasm for new provide is comprehensible, although telling the market that you just need to purchase big tonnage is uncommon client behaviour.
Traders duly took their cue and the London Metal Exchange (LME) nickel price fizzed from $13,150 a tonne to a excessive of $13,705 on Thursday.
Maybe Mr Musk is just doing his bit to push up the price to a stage the place new initiatives will be incentivised, on condition that nickel could do with a serving to hand.
TOO MUCH NICKEL?
Nickel has been dragged larger within the broader base metals restoration, nevertheless it is among the laggards throughout the LME suite. Currently buying and selling at $13,435 because the Tesla tremor fades, it’s down 5% because the begin of the year.
It’s not troublesome to see why.
The International Nickel Study Group (INSG) estimates the worldwide refined market was in a provide surplus of 57,300 tonnes after the primary 5 months of the year, representing a sharp turnaround from a deficit of 31,500 tonnes on the similar level of 2019.
The median forecast in Reuters’ July analyst ballot is for a surplus of 100,000 tonnes in 2020, making it the primary year of oversupply since 2015.
LME nickel shares are plentiful at 234,636 tonnes and LME time sps proceed to commerce in snug contango, contrasting with a tightening pattern in different metals, comparable to copper.
Nickel provide has not been unaffected by the wave of lockdowns that adopted COVID-19 world wide.
Global mine manufacturing fell by 10% within the January-May interval, with the Philippines – a main ore provider to China’s nickel pig iron (NPI) producers – recording a sharp 14% slide, in response to the INSG.
Refined manufacturing fell in a number of nations, reflecting lockdowns in Canada and in Madagascar, the place Sumitomo Corp has simply booked an impairment cost on its Ambatovy operations.
Ferronickel producers additionally lowered manufacturing within the face of steep reductions to an aly low outright nickel price.
However, world refined manufacturing was still up 1% for January-May due to rising output of NPI in Indonesia, the place the mining and processing sector seems to have been comparatively untouched by the coronavirus.
Indonesian manufacturing surged by 55% year on year as building of recent processing capability continues unabated.
The incentive comes from a authorities ban firstly of this year on exports of unprocessed nickel ore.
It’s noticeable that Chinese imports of Indonesian ore had been solely 202,000 tonnes in April and May, whereas imports of Indonesian “ferronickel” totalled 380,000 tonnes.
The persevering with pattern of Chinese NPI capability transferring offshore to Indonesia additionally continues, it appears.
While Indonesia has held world manufacturing regular over the primary a part of this year, consumption in every single place else has taken a hit. The INSG estimates world utilization fell by 8% year on year for the January-May interval.
The level of most weak point has been the chrome steel sector, which still dwarfs electrical automobiles by way of nickel’s utilization profile.
Stainless metal output tumbled 8% within the first quarter, the International Stainless Steel Forum (ISSF) says.
Production fell by 9% in China, the worldwide stainless powerhouse, and by 7% in the remainder of the world – the primary synchronised downturn because the fourth quarter of 2018.
Stainless metal’s publicity to coronavirus-hit sectors comparable to hospitality (cutlery), oil and gasoline (pipes) and aerospace creates appreciable headwinds for the nickel market.
Overproduction by Chinese chrome steel producers combating for market share may mitigate the nickel hit, however solely on the expense of a construct in shares additional down the chain.
“Delayed cuts from stainless and alloys, the resulting product overhang and slow recovery of certain end-use sectors is expected to drag out a multi-year surplus,” says Citi, which could be very a lot within the bear camp of analysts. (“Q3 Commodities Market Outlook”, July 2020)
But the present price is just about saying the identical factor. One of the explanations cited by Sumitomo for its Ambatovy writedown was “the decline in mid to long-term nickel price outlook”.
Tesla’s Musk does not care about chrome steel or these types of nickel that go into making it. Like different automobile corporations, he wants battery-grade nickel, which is a subset of the various types nickel can take.
And he is in all probability proper to be fearful.
There isn’t any scarcity of recent initiatives within the planning pipeline, however the primary hindrance to improvement is the present muted nickel market.
Though the strain is most acute for these most depending on the stainless sector, comparable to ferronickel operators, producers of battery-grade nickel are usually not being spared.
Nickel’s battery story continues to draw a lot funding curiosity, to evaluate by the social media response to Musk’s feedback, nevertheless it stays trapped in a chrome steel mesh for now.
Elon Musk might want more nickel mines, nevertheless it’s the stainless sector that may determine if he will get them.
Elon Musk urges miners to supply more nickel as Tesla boosts manufacturing