The Stainless Monthly Metals Index (MMI) remained sideways, retreating by a modest 2.64% from December to January. All of the index’s components trended lower, weighed down by bearish nickel prices throughout the month.
Indonesia to Address Nickel Supply Glut
Indonesia is currently eyeing substantial output cuts after nickel prices descended beneath the $15k/mt mark. High supply and lower-than-expected demand conditions saw nickel prices languish to an over 4-year low in early January. Mostly slow but steady price declines pushed prices to their lowest level since October 2020, with averages reaching just $14,995/mt on January 3.
At the same time, exchange inventories ballooned. Simultaneously, SHFE nickel stocks climbed to their highest level since August 2020, while LME stocks hit their highest level since September 2021.
According to Bloomberg, the Indonesian government aims to cut its nickel mine quota from 272 million tons in 2024 to just 150 million tons in 2025. Should Indonesia choose to cut the full amount, it would reflect a nearly 45% year-over-year decrease. It would also impact an estimated 35% of global supply.
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Most Countries Blame Indonesia for Nickel Glut
Most analysts consider Indonesia the primary culprit behind the currently weak fundamentals. Supply from the archipelago boomed over recent years as it sought to achieve market dominance. As part of a multifaceted strategy, Indonesia increasingly exploited its vast mining reserves while banning nickel ore exports to attract value-added investment.
These investments, mostly from China, include both nickel processing and downstream manufacturing operations for stainless steel and batteries. Due partly to its significant investment in the country, many expect stainless output from Tsingshan Holding Group to surpass 30% of global production.
According to data released by the U.S. Geological Survey, Indonesia accounted for less than 6% of total nickel mine production in 2014, compared to 50% in 2023. During that same period, production levels surged by roughly 1,285% as Indonesia swiftly became the market maker. Meanwhile, many expect Indonesia’s share of the total to come in even higher for 2024, with some estimates expecting the country to account for around 68%.
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Nickel Market Witnesses Big Shifts
In the wake of Indonesia’s recent upswing, a number of global mines found themselves forced to either curtail capacity or close entirely. Indonesia remains a low-cost producer, leveraging its vast coal reserves to power its mining and smelting operations. This allows it to undercut more costly operations in other countries while remaining profitable, even as nickel prices plummeted.
In Australia, the market faced the permanent closure of the Yilgarn mining hub and indefinite closures of BHP’s Nickel West operations and Panoramic Resources’ Savannah nickel mine. In New Caledonia, Koniambo Nickel SAS and SLN’s Poum Mine also faced closures. Notably, SLN’s Poum Mine specifically attributed the closure to increased competition from Indonesian producers.
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Nickel and Stainless Price Impact
It remains unclear to what extent Indonesia will cut its mining quota. Nevertheless, tighter supply out of Indonesia will eventually offer support to the oversupplied nickel market. However, this is not an immediate risk to nickel prices, as it will take a long time before tighter ore supply forces smelters to lower output.
Beyond that, demand conditions will play a decisive role in what happens with nickel price action, which could either temper or exacerbate the bullish impact of tighter supply. In the meantime, the significant volume of nickel stocks available in exchange inventories and elsewhere will offer a cushion for the market.
As a result, nickel prices will likely continue to edge lower, dragging stainless steel surcharges along with it. Nickel and NAS’ 304 surcharge have boasted a nearly 90% correlation since 2012. Although the correlation has tempered in recent years, nickel remains the surcharge’s most influential driver.
Biggest Moves for Stainless Steel and Nickel Prices
- Chinese primary nickel prices fell 4.3% to $17,012 per metric ton as of January 1.
- The Allegheny Ludlum Surcharge for 316 cold rolled coil prices witnessed a 4.36% decline to $1.47 per pound.
- LME primary three month nickel prices dropped 4.52% to $15,310 per metric ton.
- The Allegheny Ludlum Surcharge for 304/304L coil fell 5.81% to $0.91 per pound.
- Chinese ferrochrome prices experienced the largest decline of the overall index, dropping by 6.55% to $1,132 per metric ton.
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