Nickel Price Undervaluation: A Market Insight

Nickel's Market Dynamics: A Closer Look

According to foreign media reports on June 14, 2024, the nickel price has plummeted by 23% over the past 12 months, hitting a low of $15,800 per ton in February of this year. Since then, supply issues and sanctions have propelled the price to over $21,000 per ton, but this week it has retreated to $17,800 per ton.

Even under the best circumstances, nickel prices are subject to fluctuations, which are exacerbated when supply problems arise, as seen in the second quarter of this year.

Market Sentiment and the Impact of Russian Supply Ban

There is a prevailing negative sentiment in the metal trading market regarding the expected trend of nickel prices this year. However, some market observers may have underestimated the long-term impact of the ban on Russian supply. They have also overlooked the potential growth in demand for other industries such as stainless steel, alloys, armor, drive shafts, and turbine blades, which are less affected by inflation and interest rate changes.

New Caledonia's Influence on Nickel Prices

Indonesia, the largest nickel producer, is often thought to be creating an oversupply that will cap prices. However, most production is already spoken for in long-term contracts, and the exchange prices are influenced by marginal changes in production.

Recent unrest in New Caledonia, following the French vote on electoral law reform, has nearly brought nickel processing to a standstill. The turmoil has led to the shutdown of SLN, the largest nickel producer under the French metal company Eramet. Other local producers have ceased smelting operations due to safety concerns and lack of profitability.

Sanctions on the LME and Russia

In April of this year, the UK and the US banned the delivery of Russian metals to the New York Mercantile Exchange and the London Metal Exchange (LME). This move was not surprising to traders and Russian producers, who had already sold off a significant amount of metal in anticipation of some form of sanctions.

Demand Outlook and Market Entry Opportunities

On the demand side, nickel prices softened in 2023 and early 2024 due to expectations that high interest rates would curb electric vehicle sales, a major consumer of nickel. However, the uses of nickel are much broader, including stainless steel and other alloys, which are less affected by inflation and interest rates.

Most other industries that are end-users of nickel are expected to grow steadily in the coming year, maintaining strong overall demand. Therefore, the current decline in nickel prices may present an interesting market entry point rather than an indicator of future price declines.

Content sourced from THE ARMCHAIR TRADER, does not represent the views of 51BXG.

51BXG does not guarantee the accuracy of software translation and is for reference only. Copyright belongs to the original author.