Nickel prices hit five-year highs on Monday due to worries about shortages as top producer Indonesia said it would stop ore exports from January 2020, two years earlier than initially flagged. Benchmark nickel on the London Metal Exchange ended up 0.9% at $18,060 a tonne, and has now gained nearly 70% this year. The stainless steel ingredient earlier touched $18,850 a tonne, its highest since September 2014.
"It's a time-lag problem rather than a supply problem, although we will have a supply problem in the future with demand growth from the battery sector," said Caspar Rawles, analyst at Benchmark Mineral Intelligence. Nickel is a major component of the lithium-ion rechargeable batteries used in electric vehicles, sales of which are expected to rise sharply as governments and consumers look to cut noxious fumes from fossil-fuelled cars.
"We've had a long period of low prices. Higher prices are needed to incentivise new production," Rawles said. "Higher prices are a good thing for the supply chain, particularly as the world moves towards electric cars." Indonesia's ore export ban is part of an effort to process more resources locally, though it may be able to plug any shortfall in nickel supplies by boosting its own capacity.
"(The ban), could result in huge supply losses for the global nickel market in the short term as domestic smelting capacity is still not sufficient to fully process the nickel ore produced in the country," ING analysts said in a note. Nickel traders said people were also worried about nickel availability on the LME due to low stocks, a high percentage of cancelled warrants and a large holding of warrants.
Stocks of nickel in LME-registered warehouses at around 152,000 tonnes have halved since May last year, while cancelled warrants or metal earmarked for delivery are above 41%. One company is also holding between 50% and 79% of LME nickel warrants, creating nervousness in the market. The premium for the cash over the three-month contract closed at a 10-year high of $104 a tonne on Friday. It was last at $58 a tonne.
Some of the shortfall could be offset as Philippine nickel mining companies boost production next year, but a gap between demand and supply will remain. Other industrial metals remained under pressure from the US-China trade war. Copper ended down 0.8% at $5,620 a tonne, its lowest since June 2017. Aluminium slipped 0.2% to $1,749, but zinc gained 1.6% to $2,244, lead rose 0.2% to $2,021 and tin added 2.7% to $16,800. Earlier, tin touched a one-month high of $17,575 a tonne.
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