All eyes to the LME as nickel trading is suspended after price soars past $100,000 per tonne. Energy metals brace for further disruption and price rises as Russia’s invasion of Ukraine hits more than just oil, gas and coal.
Nickel
The nickel prices on both London Metal Exchange (LME) and Shanghai Future Exchange (SHFE) have hit historical highs.
The three-month nickel contract price on the LME once hit $101,365 per tonne during night trading on Tuesday March 8. The price then dropped to slightly over $80,000 per tonne prior to the opening of day trading.
The prior historical high of nickel prices on the LME was $51,800 per tonne in May 2007. The LME suspended trading in nickel this morning for the first time in its 145 year history after the price doubled.
Tracking the LME strength since last night, the most-traded April nickel contract price on the SHFE opened the day trading with at 228,810 yuan ($36,266) per tonne on March 8, hitting a record high.
Fears over nickel supply disruptions following Russia-Ukraine conflict continued to be aggravated, inciting extensive buying on both platforms.
Russia is the third largest supplier of nickel accounting for nearly 13% of the total global nickel mining capacity in 2021. Russia produced 283,000 tonnes of nickel (metal weight) in 2020, accounting for 11.27% of the total nickel output in the world.
In 2020, Russia’s total refined nickel exports reached 115,000 tonnes, with most exports going to mainland China, where the majority of supply will be used in the stainless-steel market.
The top nickel mining suppliers, Indonesia and the Philippines contribute to about 34% and 15% global mining capacity in 2021.
Spot nickel sulfate price in domestic China has mildly tracked the nickel metal prices higher.
The nickel sulfate price in China was 41,500 yuan per tonne in early March, compare to 38,500 yuan per tonne in early February. However, due to the tremendous futures price hikes yesterday and this morning, suppliers have stopped making offers, waiting for clarity in the market since current nickel prices can’t be justified purely on market fundamentals.
Meanwhile, the price gap between LME and SHFE is likely to remain wide given SHFE platform has restricted the daily price increase at 15% whereas LME has no similar cap on price increase. On top of all this, due to the accelerated lithium price upturn since late last year, cathode producers and battery manufacturers have found it increasingly difficult to absorb the prices hikes in the battery upstream minerals. As such, it is estimated that the nickel sulfate price will continue to follow nickel metal prices up, but in a slower manner even after the recent price jumps.
Cobalt
Cobalt prices have continued their upward trajectory since Russia contributed 6% of the cobalt output in 2020 and accounts for 2% of global cobalt mining capacity in 2021.
Spot inquiries for cobalt metal has picked up quickly in recent days, and traders have expected the market to retain a good appetite for cobalt cut cathode amid geopolitical uncertainties.
The benchmark cobalt metal price on in-whs Rotterdam basis moved up to about $37 per lb on March 7, compared to $34.6 per lb in early February. It is estimated that the in-whs Rotterdam cobalt metal price will rise further in the near future.
Cobalt sulfate was heard to have been traded above 120,000 yuan per tonne on Monday, compared to 109,000 yuan per tonne in early February, tracking the metal price higher.
The supply constraints for cobalt hydroxide, the upstream intermediates to produce cobalt salts, remained significant with deliveries delayed averagely by 1-2 months between the Democratic Republic of Congo, where 70% of cobalt is mined, and China, where over 70% of cobalt is processed.
The impact of price hikes in cobalt sulfate is expected to be slower than the metal given the overall pressure on production costs of nickel-cobalt-manganese (NCM) lithium-ion batteries.
Battery cost increases will in turn put pressure on OEMs, despite some battery metals price rises being mitigated by subsidies. —Susan Zou, senior analyst
OCTG
The ongoing war between Russia and Ukraine will result in a steep rise in steel prices around the globe. Both Russia and Ukraine are manufacturers and exporters of steel products, including OCTG and linepipe, and raw materials such as coking coal, pig iron and natural gas. The sanctions on Russia and halt in production in Ukraine will lead to a lower availability of steel products and related raw materials in the international market, causing a price escalation from alternative suppliers. We expect global logistical problems to intensify further affecting steel product prices. A shortfall in supply due to the ongoing war will keep steel prices at buoyant levels in the near term.
OCTG and linepipe prices in Europe will also witness the uptick on the expected raw material shortage in Europe. Prices will remain elevated until alternative feedstock sourcing is found. However, this will take time given the quota system on steel imports in Europe. Delays in payments and finding alternative sourcing, rising sea freight and insurance costs will affect OCTG and Linepipe prices. Higher natural gas, oil and energy prices will likely increase in Europe on the back of sanctions on Russian energy, pushing OCTG and Linepipe prices higher.—-Marina Bozkurt, senior analyst
