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Nickel hits 10-year high as electric vehicle production ramps up

Nickel has joined a broader rally across commodity markets, climbing to a decade-high as stockpiles dwindle and major automakers ramp up vehicle production. electricity.

The metal, used in more powerful EV batteries, rose 4% on Wednesday to a 10-year high of $22,745 a tonne as stocks in warehouses approved by the London Metal Exchange fell. for the 51st consecutive day. In China, nickel stocks in official warehouses are near a record low of just 4,859 tonnes.

Nicholas Snowdon, analyst at Goldman Sachs, said: “With China’s policy response gathering steam at a time of severely depleted inventories, the micro and macro conditions are starting to align, makes metals more scarce.”

Jeremy Weir, the chief executive officer of Trafigura, one of the world’s largest commodity traders, echoed those comments. Speaking at the Future Minerals Forum in Saudi Arabia, he said inventories around the world are at a critical level and prices are “starting to move to reflect that”.

“We are starting to see consumers waking up and realizing the problems exist,” he said.

Nickel has increased 12% in the past month, driven by increased demand for electric vehicles – one in four new car sales in the UK in December are battery cars – and a flurry of announcements about new nickel mining projects.

The metal rose as copper, the world’s most important industrial metal, traded above $10,000 a tonne for the first time since October on signs that China will provide more stimulus to support. economy.

At the same time, oil hit a two-month high of $85 per barrel as concerns about the impact on demand from the coronavirus variant Omicron continued to decline and US crude inventories fell to their lowest levels since October 2019. 2018. Overall, the Bloomberg Commodity index. up 5% this year.

3-month LME price line chart (USD/ton) shows Nickel has reached its highest price in 10 years

Earlier this week, BHP, the world’s largest mining company, left a giant nickel project in Tanzania, while carmaker Tesla signed its first supply deal in the US with an agreement to buy 75,000 tonnes of the metal from its Tamarack consignment in Minnesota.

“The plethora of recent announcements about nickel developments is testament to confidence in future market fundamentals driven by demand,” said Colin Hamilton, analyst at BMO Capital Markets. twin batteries and stainless steel,” said Colin Hamilton, analyst at BMO Capital Markets.

According to the International Energy Agency, demand for nickel will need to increase 19-fold by 2040 if the world is to meet the goals of the Paris agreement on climate change.

However, most of the supply increase this decade is expected to come from Indonesia, a market dominated by coal-fired power, where Chinese companies are building nickel processing projects.

As a result, Tesla boss Elon Musk has express concern future supply of nickel, which promises huge contracts over the long term for companies that can mine the metal in a sustainable and environmentally sensitive manner.

While there is much excitement about increased demand for nickel from auto manufacturers, more than two-thirds of global production still goes towards stainless steel production.

As stainless steel demand picks up after the worst pandemic-induced shutdown in 2020, nickel recorded a supply-demand deficit of around 180,000 tonnes last year – about 6% of the total market size of the metal. it.

To prevent inventories from falling further into 2022, Hamilton says nickel supplies will have to increase by 200,000 tonnes. Hamilton says such an increase is by no means impossible, but it involves “a lot of things going in the right direction”.

That view is echoed by Snowdon, who said increased nickel supplies from Indonesia will not be enough to prevent inventories from continuing to dry up.

“Much tighter starting point for the market this year coupled with strong EV trends ahead means this may no longer be enough to induce an overall shift back into surplus,” said Snowdon. clearly”. He has a 12-month price target of $24,000 for nickel – up about 6% from the metal’s current levels.

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