The London Metals Exchange has banned Russian nickel from UK warehouses. Does that mean more upside for prices?

The LME has finally moved to ban Russian nickel from being sold into UK warehouses
Experts say the move could put additional upwards pressure on prices
The need for nickel to feed the EV industry will support higher prices long term: Poseidon Nickel’s Peter Harold

The fallout from the nickel market’s epic short squeeze back in March is yet to truly unwind, with complaints from traders who had deals cancelled as the price spiralled above US$100,000/t in the wake of Russia’s invasion of Ukraine still circulating.

At the time, the nickel market on the London Metals Exchange was shut for days as the metals warehouse of last resort weighed up the options to bring the market back to normality, salvaging Chinese stainless steel giant Tsingshan from billions of losses on short bets its boss Xiang Guangda took out on the metal’s price falling.

That was only on the expectation that nickel supplies from Russia, responsible for around 10% of primary nickel metal and 16% or more of the market for class 1 nickel sulphides, would be locked out of the market.

What happens when that actually occurs?

We may find out after the LME finally acted on calls to ban Russian nickel from its approved warehouses in Hull and Liverpool in the UK. A Hard Day’s Night for Nornickel CEO Vladimir Potanin, whose recent sanctioning by the UK Government prompted calls to lock the major producer’s metal out of the country.

Previously the LME, owned by the Hong Kong Exchange, had said it was convinced Nornickel’s activities were run separately of Potanin’s influence.

It now says any Russian nickel delivered after July 20 cannot be housed in Britain, which it currently isn’t. Anyone importing Russian nickel into the UK would be hit with a string of costs that have the potential to “dislocate the market”.

Nickel prices rose 1% to a healthy US$22,235/t overnight. But what impact will sanctions against Russia have going forward?

Potential to lift prices

Poseidon Nickel managing director Peter Harold, a veteran of 30 years in the nickel industry, said the volume of nickel produced by Norilsk meant any moves to restrict Russian supply could have an impact on prices.

“I would think it would put additional pressure on the price going up, because clearly historically, there has been some Russian metal coming onto the exchange,” he told Stockhead

“I would have thought that would have been positive for the nickel price.

“The current primary nickel production around the world is about two and a half million tonnes and from memory, they’re about 250,000 tonnes of primary, about 10%. So it’s pretty significant.

“I also understand that there’s been some impact on Russian concentrate not being able to be traded as much. So I understand that the concentrate market’s tightened up as well.”

Market dynamics support higher prices

But whether Russian supply is removed from the global supply chain or not, Harold says the long term outlook for nickel demand is extremely strong.

Traditionally used in stainless steel, the first nickel boom 60 years ago was propelled by the need for industrial metals in weaponry built during the Vietnam War.

Now the main tailwind for nickel demand is the shift to low carbon energy and the rise of electric vehicles, which could require a quadrupling of nickel supply by the middle of this century.

Good luck delivering that at current prices.

“If you’re talking about 2050, the need for nickel is like 10 million tonnes a year of production,” Harold said.

“The amount of capital that’s required to invest in these projects is not insignificant, and some of those projects are going to take time to get permitted and built and so on.

“So I think the pressure on pricing remains for a long period of time, I think we’re in a new nickel pricing cycle.”

Harold says the incentive price to bring that production online will need to be much higher than historical levels, outside of a brief run to US$50,000/lb before the GFC in 2007.

“When I first got into nickel 30 years ago, we used to use a US$2.50/lb price with upside of $3 or US$3.25/lb,” he said.

“15-20 years ago, we were using US$4/lb nickel and maybe US$5-$6/lb upside.

“Now … consensus is around US$9/lb going forward, I think you’re in a situation where US$10/lb nickel is probably going to be the median price going forward in terms of evaluating projects, and you’re going to need that sort of pricing to be sustained to actually ensure that these new projects get built.

“Because the capital for some of these projects is in the several billions of dollars.”

Poseidon is currently completing a bankable feasibility study on its Black Swan mine and concentrator, 50km north of Kalgoorlie-Boulder, with Harold saying offtake interest has been strong.

It is assessing a 1.1Mtpa study on a conventional concentrate that could be sold to smelters like BHP’s (ASX:BHP) Kalgoorlie Nickel Smelter and a larger, 2.2Mtpa option that would deliver a concentrate that would be suitable for downstream processing into battery nickel products like the Kalgoorlie pre-cursor plant being studied by privately-owned Pure Battery Technologies.