Macquarie said on Thursday that the cost of producing low-grade nickel pig iron (NPI) in China will be the key to determining nickel prices. Nickel prices on the London Metal Exchange (LME) are down 45% in 2023 and are under further pressure.
Nickel was the worst performer among LME metals in 2023, Posting its biggest decline since 2008 as Indonesia and China increased production of low-grade nickel products.
Macquarie analyst Jim Lennon said in a research note that prices are already deeply stuck in the industry cost curve, with more than 60 per cent of global production cash flow negative at $16,000 a tonne.
If there are more supply cuts globally, prices will rise in the second half of 2024, he said.
However, by far the world's largest supply comes from Indonesia and China, where ore prices have fallen sharply in recent months, leading to lower costs, particularly for nickel pig iron, Lennon said.
Over the past few years, nickel pig iron prices have been determined by the price movement of the LME nickel contract.
That relationship weakened in 2022 as low-grade products made the market more fragmented, and has now reversed due to the arrival of large-scale capacity to convert nickel pig iron into nickel matte and then nickel sulfate or metal, Macquarie said.
"The excess supply of nickel pig iron capacity is so large that the nickel pig iron price will now determine the level of the LME price. The bad news for LME prices is that nickel pig iron costs are still falling, "Mr Lennon said.
