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Shift to infrastructural spending, EVs likely to drive Nickel higher

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By Yash Sawant

The promising recovery in base metals over the recent months despite the ongoing global crisis has left the markets in awe.

After collapsing in the early months of 2020, base metal prices recovered on the back of a stellar recovery in China’s economy (since Q2 -2020) whilst the rest of the world continued to struggle taming the novel coronavirus. Nickel, the primary raw material for stainless steel, has gained about 18 per cent on LME and over 13 per cent on MCX since July 2020. The silvery-white lustrous metal outperformed most industrial metals even after witnessing a huge surplus in the first half of 2020 as growing demand pushed the prices higher.

Production Situation

Production activities in key Nickel producing nations, Indonesia and Philippines, were relatively less impacted by the pandemic. Markets expected a significant shortage of Nickel in 2020 considering the nickel ore export ban announced by Indonesia in January. However, the global economies vulnerability to black swan led to a collapse in demand for Nickel and other industrial metals.

Steady growth in supply from major producers and weak demand left the global Nickel market with a surplus of 76,300 tonnes in the first half of 2020 against the deficit of 31,200 tonnes during the similar period in 2019 (data from the INSG).

Recovery pillars

While the growing surplus was a considerable headwind for Nickel, rising stainless steel production layered the base for recovery. As per the International Stainless Steel Forum (ISSF), Stainless steel segment, the major Nickel consumer, witnessed an 8 per cent drop in output in the first quarter of 2020 (China’s output fell around 9 per cent) as the Covid-19 pandemic shackled the global economic activities.

However, as China revived from the pandemic lows, enormous stimulus measures were infused to help get the economy back on track. Markets expected China and all the major economies to boost the infrastructural spending in an attempt to combat the pandemic triggered slowdown, in turn increasing the demand outlook for steel. Despite a 9 per cent year on year increase in China’s crude steel output in July, imports of steel materials surged to 2.61 million tonnes, indicating a jump in domestic demand which uplifted Nickel prices. While the stainless steel segment continues to be the demand driver for Nickel, the Electric Vehicle (EV) markets are soon expected to steal the limelight. With the world moving towards green transportation, demand for Electric vehicles is expected to proliferate in the years to come.

Nickel is a key component of the secondary batteries used in the EVs which can be recharged and used. Nickel increases the EV batteries energy density and storage capacity which make the silvery-white metal very valuable. Major economies like China and Eurozone infused a range of supportive measures for the EV segment. As per reports from the International Energy Agency, about 7.2 million Electric vehicles are on the road and the figure is expected to multiply at a faster pace.

Outlook

Massive stimulus packages rolled out by major central banks focusing on the infrastructural development buoyed the outlook for Nickel and other industrial metals. Booming China’s stainless steel production considering the surge in infrastructural projects to combat the slowdown and growing Nickel demand from the EV sector are the major pillars of support for the prices. However, solid growth in China’s output might result in a possible surplus which is keeping the markets cautious. Widening impact of the pandemic on the global economy is a key risk to the financial markets. Major economies are struggling to contain the virus, bleak demand outside China and its growing rift with US over a range of issues are some of the major setbacks in the recovery path which might undermine growth prospects for industrial metals.

Considering the steady growth in demand for stainless steel and the budding EV sector we expect Nickel prices to trade higher towards RS 1,150 per kg on a months’ time frame.

(Sawant is a Research Associate at Angel Broking)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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