Glut depresses nickel prices, sector prospects

Glut depresses nickel prices, sector prospects | Daily Tribune

Market pundits are increasingly anxious over the effects of the nickel oversupply in the global market after the frenzy on the expected rise in demand for the metal, which is a vital component of batteries primarily for solar power systems and electronic vehicles (EVs).

It proved the projections were overblown, resulting in a glut in the nickel market which has depressed prices.

Two major brokerage houses issued a hold recommendation on Nickel Asia Corp. which has a stock symbol of NIKL.

AP Securities said the oversupply impacted NIKL’s profitability despite increased sales volumes.

It also met regulatory uncertainties and incurred losses from its high-pressure acid leaching (HPAL) investments.

NIKL reported a challenging 1st half performance that was impacted “by global market dynamics, particularly the oversupply of nickel, which exerted downward pressure on prices,” AP Securities stated in a report.

An 8.5 percent year-on-year increase in nickel ore sales volume was overshadowed by low average selling prices (ASPs) and a reduced contribution from its equity investments in HPAL plants.

The company delivered 3.93 million wet metric tons (WMT) of limonite ore to HPAL plants but the realized price per pound of payable nickel fell significantly to highlight the challenging market environment.

Looking ahead, NIKL plans to focus on optimizing operational efficiencies and exploring value-added processing opportunities, particularly in the HPAL segment, to cope with the low-price environment.

Potential improvements in global nickel prices or a reduction in oversupply could provide financial recovery opportunities for the company, according to AP Securities.

Regina Capital Development Corp. said in a review that the nickel oversupply was largely due to increased production from major nickel-producing countries like Indonesia, which has ramped up output as part of its strategic move to dominate the global nickel supply chain.

It added that slower-than-expected growth in demand from key sectors, particularly stainless-steel production and EVs, has exacerbated the glut.

Indonesia seeks supply domination

Indonesia, the world’s largest nickel producer, has been aggressively pursuing policies to capture more value from its nickel resources. The country implemented an export ban on nickel ore in 2020 to push for more domestic processing, aiming to develop a downstream industry focused on producing battery-grade nickel.

The policy has resulted in a significant increase in production, and more recently, in HPAL projects designed to produce nickel sulfate for batteries. Indonesia’s strategic focus on becoming a hub for the global battery supply chain, coupled with its abundant nickel reserves, positions it as a formidable competitor in the nickel market.

However, the success of these policies also depends on how well Indonesia can manage environmental concerns and sustain investment inflows into its nickel processing industry.

Looking forward, RCDC said NIKL’s strategic focus will likely involve optimizing operational efficiencies to cope with the persistent low-price environment.

Any improvements in global nickel prices or a reduction in oversupply could provide an upside potential for NIKL’s financial recovery in the latter portion of our forecast period.