The LME recently announced that it has approved nickel cathode produced by Quzhou Huayou Cobalt New Material (a subsidiary of Huayou) with immediate effect. The exchange first received an application from Huayou on 9 June 2023, as such, this represents the first approval since the LME reduced waiting times for listing. Traditionally, producers seeking to list on major exchanges go through a thorough registration process with strict guidelines relating to quality, grade, shape and weight. However, a six-week turnaround seemingly demonstrates the LME’s eagerness to boost nickel trade volumes since the short squeeze difficulties of 2022.
The nickel market remains in a large surplus with most of this in the form of nickel pig iron (NPI) and nickel sulphate, which are currently undeliverable against the LME nickel contract. However, Class I (>99.8% purity) supply is much tighter with LME nickel inventories at their lowest levels since 2007. This feature is a major driver of price volatility and detachment from market fundamentals since the exchange halted nickel trading after a major short squeeze in March 2022. As such, the LME now hopes that Huayou’s listing will increase nickel inventories on the exchange, thus boosting liquidity.
The development could pave the way for a surge of Class I nickel to hit the exchange as producers of Class II and intermediates look to take advantage of higher refined nickel prices on the LME. NPI has traded at discounts between 30-40% to LME prices during 2023 and a glut of intermediates from Indonesia, suitable for refining to LME deliverable products, could swell inventory levels.
In January 2023, Tsingshan was reportedly in talks with several struggling copper smelters in China to explore the potential of repurposing them to produce refined nickel metal. Other Chinese producers of nickel including GEM and CNGR Advanced Materials were also said to be considering launching production of nickel cathodes in China and Indonesia.
The nickel price started to normalise through the first half of 2023 before fluctuating between a US$20-22,000/t range since June. Additional Class I nickel units entering the market should support a bearish view on prices. However, concerns over the ability of these new entrants to consistently match the strict quality criteria demanded by sectors consuming the highest purity material (superalloy, plating etc), could yet justify prices stabilising around today’s levels.
Source: project blue
