Russian nickel inventories on the LME increased by 35% in November amid falling demand for the metal.

Russian nickel inventories on the LME rose by 35% in November amid lower demand for the metal from industrial sectors. Chinese and Australian nickel reserves are also rising. The increase in inventories may reflect a slowdown in nickel demand in China, accompanied by a continued decline in prices. Analysts, however, note that at current prices, up to 25% of global nickel production is already on the verge of profitability or at a loss.

In November, reserves of nickel of Russian origin increased by 35% over the month, to 11.1 thousand tons, according to data from the London Metal Exchange (LME). Total reserves of this metal also increased by 14.2%, to 43 thousand tons. Russian companies, as a rule, do not sell metal directly to the exchange, using long-term contracts with end consumers. But the LME system is actively used by traders.

Negative trends in nickel accumulation are observed among all major producers and consumers of the metal. Chinese nickel reserves, which appeared on the LME system for the first time since data on the metal’s origin began being disclosed in January this year, doubled in a month to 3 thousand tons. The largest source of growth in nickel reserves, Australia, increased them by 9%, to 20.5 thousand tons.

Despite the increase in inventories on a monthly basis, they are still at historically low levels. “During part of the second half of 2022 and all of 2023, we are observing massive destocking, disposal of reserves,” said Mikhail Borovikov, director of the department for work with the investment community of Norilsk Nickel, in November. “Across the entire spectrum – copper, nickel, zinc, etc. Further. This process had a negative impact on prices… Now mass destocking is coming to an end. All the inventory that could be sold has, by and large, been sold. If you look at nickel and copper inventories on the LME, they are at historically low levels and outflows are continuing from there.”

The increase in nickel reserves is a consequence of a decrease in demand for it. Norilsk Nickel, which produces 214 thousand tons of nickel per year, on December 4 announced an increase in the estimate of the metal surplus on the world market in 2023 – from 200 thousand to 250 thousand tons. “While electric vehicle sales are at record highs, we are seeing continued destocking in the battery chain, an increase in the share of nickel-free lithium iron phosphate batteries and a partial shift in sales from battery electric vehicles to plug-in hybrids in China. At the same time, the commissioning of new nickel production capacities in Indonesia continues at an active pace,” the company’s forecast stated.

The price of nickel for delivery in three months fell 5% over the past month to $16.5 thousand. Fitch Ratings lowered its nickel price forecasts for 2024 due to reduced demand from stainless steel producers in China. According to the new forecast, the price will average $18 thousand instead of $19 thousand. The increase in inventories and the appearance of Chinese nickel in LME warehouses is causing concern among international traders who see this as a broader trend of a slowing economy and falling demand for raw materials, Fastmarkets wrote in October.

According to analysts, a decrease in nickel prices will have a limited effect. The price fell amid investor concerns about excess supply from Indonesia and possible problems in the real estate sector in China, comments Boris Krasnozhenov from Alfa Bank. About 70% of nickel consumption comes from the stainless steel segment, which is mainly consumed in the construction and engineering sectors. However, Mr. Krasnozhenov notes, even at the current price of nickel, about 20–25% of global producers may operate at a loss or be on the verge of profitability, which makes maintaining such prices unsustainable in the long term.

Evgeniy Zainullin