The energy transition is set to benefit nickel and copper in the long-term, with the demand-side to be boosted by rising electric vehicle sales and related battery demand, panel participants at the LME Week Seminar held Oct. 11.
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Pala Investment head strategist Jessica Fung said during the Metals Debate panel that the coronavirus pandemic had helped along the global transition to becoming more sustainable, whether it was environmental or social, and, as a result, the nickel market's prospects were "quite bright."
Fung estimated that demand from batteries would make up 10% of the nickel market by 2025, rising to 30% by 2030, which was up from around 3% of nickel demand in 2020.
"By the end of this decade, one third of nickel demand is going to be used as an energy source, this is an entirely new market and drive for one of the major LME metals," she said. This meant that by 2030, the nickel market would need to be 60% larger than it was today to meet demand from traditional markets like stainless steel, as well as growing battery demand, she added.
Despite growing demand, Fung was not worried about supply, saying that there were "plenty" of nickel projects, mostly in southeast Asia, that were expected to come online, therefore she believed there was enough supply to meet demand.
"This is not a structural supply deficit story, this is a demand story," she said.
Nickel prices - currently around $19,221/mt - were expected to move structurally higher, Fung said, as the market was in a supercycle, as it was being driven by a singular driver, namely the energy transition.
"In a commodity like nickel, which is the most leveraged commodity to the energy transition (among the metals being discussed by the panel), this is one metal that will see a structural uplift in prices because we have to see it because of the supercycle, Fung said. "It's a very simple story - we will see structurally higher prices, because of the push towards sustainability."
Positive copper medium-term outlook
Vanessa Davidson, CRU director of base metals research & strategy, told the seminar that, while global copper consumption was set to increase by 5% in 2021 and then halve in 2022 to 2.5%, the medium-term outlook for demand was still "extremely positive" due to the green energy transition.
"The green energy transition is important, as prospects for copper use in green applications are already influencing market sentiment," Davidson said. "It's fair to say that 2020 has been an inflection point for the industry. EV sales have been rising in all the key regions -- US, Europe and China -- and according to our forecasts, EVs as a share of total light duty sales, should increase from around 7% this year to nearly 30% by 2030,."
Translating CRU's forecast for EVs, renewables and other green applications into terms of refined copper, it estimated that green application would consume 1.2 million mt of refined copper in 2021, representing 5% of the world total, she said. This was forecast to rise to 10% by 2025 and 20% in 2030, which was equivalent to nearly 6 million mt of refined copper.
According to S&P Global Platts analytics forecasts, global plug-in light duty EV sales are expected to rise to rise to 10.5 million units in 2025, up from 3.1 million units in 2020 and 6 million units in 2021. This will continue to climb to an estimated 21.7 million units by 2030.
On the supply side, Davidson said that CRU estimated growth of 6% in 2021, reflecting the recovery in production at many mines and startup and ramp up of a variety of new projects, with the growth rate forecast to fall to 3% in 2022.
"In the short-term, supply is expected to be sufficient for demand due to new projects, but it will be insufficient to enable industry stocks to rise from presently low levels," she said.
However, on a longer-term basis, Davidson said that although some project approvals were starting to filter through, there hadn't been that many, especially if you took into account the recent prices highs.
"If you look at the longer project pipeline, there are relatively few committed projects... we do need more project development in order to feed the immediate increase in demand that we have forecast," she said.
"While prices are expected to drop in 2022, they are expected to remain at historically high levels and well above metal price levels across the board, this should result in record high margins for copper producers," Davidson added.
CRU forecasts an annual average three-month LME copper prices of $8,700/mt in 2022, with a market surplus of 100,000 mt, due to a slowdown in demand growth and increase in mine production from new projects.
However, Davidson said that, although prices were expected to move lower from current levels of $9,361/mt, CRU's assumption was that prices would remain well above metals across the board for two key reasons. Firstly, the level of industry stocks, which she said would remain at intrinsically low levels, and, secondly, the green energy transition coupled with a lack of new mine supply in the medium to long term.
After listening to the panel, seminar attendees voted on which base metal had the most potential upside for the year ahead, with around half choosing nickel, while only 14.3% said copper.