Benchmark nickel on the London Metal Exchange (LME) surged to its highest value in more than a decade on 22 February after Russian president Vladimir Putin ordered troops into Ukraine, sparking global condemnation and prompting US and European allies to vow to respond with sanctions that could severely hurt supply of the metal.

 

The three-month nickel contract jumped to $24,905/t, as of 08:44 GMT, the highest level since 1 August 2011 as economic sanctions on Russia, which constitutes about 7pc of global production and is a major exporter of high-grade nickel to both Europe and China in particular, look likely to disrupt availability of the metal.

 

LME nickel has now increased by over 20pc since the start of the year. It was last below the key $20,000/t threshold on 22 December 2021 and has since gained 25.45pc as the Russia-Ukraine crisis has intensified.

 

Russia's official customs data for exports of unwrought nickel, listed under HS code 7502, totalled 45,379t in 2021 but the actual number is probably much larger given that the country's main producer Norilsk Nickel produced 193,006t last year and exports the bulk of its output.

 

LME nickel has been on an upward trajectory in recent months owing to underlying tight supply that has resulted in persistent low stocks.

 

LME on-warrant tonnage fell to a multi-year low of 39,636t today, down by 79pc from a year ago and by 26pc since the start of 2022.

Concern over further tightening of supply caused the backwardation on the cash to three-month nickel spread to spike to $628/t as of 12:00 GMT on 22 February, more than double its level on the morning of 18 February.

 

The acute supply stress has been partially driven by the exploding demand for Class 1 nickel, used in batteries for electric vehicles (EVs). The EV market is growing exponentially, with sales more than doubling year on year in 2021 to 6.6mn and constituting 9pc of the global market, according to data from the World Economic Forum (WEF). Growth has been more pronounced in China, wherein domestic New Energy Vehicle (NEV) output in 2021 touched a record high of 3.55mn units.

 

China's production and newly-installed volumes of power batteries was up by 146.2pc on the year to 29.7GWh in January.

This EV growth, combined with the resurgence of demand from China's stainless steel sector has led to a rapid drawdown of stocks globally, beginning in China and then spilling over to European warehouses.

 

While supply has also been rising at a rapid pace, growth is still dominated by Indonesian nickel pig iron (NPI), used in the production of stainless steel and unsuitable for the EV sector, while high-grade nickel continues to face a deficit. According to Nornickel, the world's largest producer of high-grade nickel, overall lower-grade global output is expected to rise by 24pc this year with the uptick in high-grade nickel production coming in at just 13pc in contrast.

 

The ramp-up in Indonesian high-grade nickel production is also reliant on the experimental new process of nickel matte, which involves converting laterite ore to battery quality material. Large volumes of high-grade nickel are due to come on line through this route to alleviate the tightness in availability, including from Chinese steel and nickel producer Tsingshan, which has already delivered its first output, but the supply deficit is not expected to be relieved until the second half of this year. (Argusmetal)