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Nickel miners need to increase Class 1 output to meet steel, EV demand: Bank of America

Highlights

Class 1 shortfall seen causing 41,000 mt deficit in 2021

Nickel Pig Iron production overtook Class 1 in Q2: Macquarie

Nickel miners will need to increase their output of refined product, among other measures, to meet record stainless steel and growing electric vehicle demand, Bank of America Securities said in a research note on Aug.23.

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The report cited "phenomenal" demand from the stainless sector, which accounts for 70% of global nickel consumption, as well as a longer-term demand from electric vehicles which are expected to reach a penetration rate of 51% by 2030, adding 1.8 million mt of annual nickel offtake by 2030.

"Keeping in mind exponential demand growth, a key concern of the nickel market is the extent to which miners will be able to prevent any shortages. We currently forecast a discrepancy in the total, i.e. refined and non-refined combined, market balance (in surplus) and the balance excluding non-refined nickel pig iron (in deficit) over the coming years," Bank of America said.

While combined nickel production is expected to post a surplus in 2021 due to increasing supply from Indonesia in the second half, Bank of America expects tightness in refined Class 1 nickel for the year, with a deficit of 41,000 mt compared with a growing surplus for Class 2 nickel Pig Iron (NPI).

"Ultimately, miners will need to produce more Class 1 and perhaps less Class 2 nickel to make sure the metal will not turn into a constraint to the EV industry," Bank of America said, adding that "Indonesia, with its resources, will likely remain key to accomplish that."

Non-NPI production

According to a report from Macquarie on Aug. 12, lower quality nickel Pig Iron passed the mark of 50% market share on the supply side in Q2 2021, leapfrogging non-NPI product with figures of 325,000 mt compared with 318,000 mt.

"Non-NPI production in Q2 was the lowest since 2010, suggesting that persistent under-investment of sustaining capital could be a material factor," Macquarie said.

However, NPI is not suited as a raw material for EV batteries, and with Bank of America forecasting a 41,000 mt supply shortfall (excluding NPI) in 2021 on the back of the long term decline, other solutions may be necessary to fill the shortfall of non-NPI nickel.

According to Bank of America, one solution might be to reduce the consumption of Class 1 nickel at stainless steel mills in order to make more nickel units available to car manufacturers, while increasing scrap supply is another alternative.

A workaround that has been proposed is set to start in October with the offtake of 60,000 mt of nickel Matte from Tsingshan's NPI sites by Huayou Cobalt and CNGR Advanced Materials for conversion into nickel sulphate that can then be used in batteries, Bank of America said.

For August, ED&F Man Capital Markets analyst Edward Meir forecasted a trading range of between $18,700-$20,700/mt "as nickel seems to be firing on all cylinders," he said. Bank of America expects the price of nickel to average $17,436/mt in 2021 and $15,250/mt in 2022.

The London Metal Exchange three-month spot nickel price was trading at $18,990/mt on Aug. 23 1358 GMT, against the closing price of $18,463/mt on Aug. 20.