HANOI: The coalition government in New Caledonia, a French territory in the Pacific that is the world’s fourth-largest nickel ore producer, collapsed on Tuesday after pro-independence politicians resigned.
Riots broke out in December sparked by protests led by pro-independence political parties over the sale of Vale SA’s nickel business in the country.
Here is what that means for the global market for the metal used to make stainless steel and batteries for electric vehicles.
HOW BIG A NICKEL PRODUCER IS NEW CALEDONIA?
New Caledonia is the world’s fourth-biggest producer of mined nickel, behind Indonesia, Philippines and Russia. It exports ore mainly to South Korea, Japan and China.
The country accounts for roughly 9% of global mined nickel output, and produces roughly 200,000 tonnes per year, according to the International Nickel Study Group (INSG).
The French territory is also the third-biggest nickel ore and concentrate supplier to top metals consumer China.
WHAT IS THE NICKEL MARKET BALANCE?
The latest INSG forecast, released last October, pegs the global refined nickel market at a 68,000-tonne surplus this year, down from a 117,000-tonne surplus in 2020.
Consultancy Wood Mackenzie, however, estimates the surplus could trim to 25,000 tonnes this year as the global economy rebounds and demand for electric vehicles and batteries picks up.
“This year, we are looking at a much more balanced nickel market – potentially even moving to deficit in Q3 briefly,” said Andrew Mitchell, head of nickel research at Wood Mackenzie.
HOW IS NICKEL DEMAND AND SUPPLY IN CHINA?
China is the world’s biggest nickel consumer, with its mammoth steel and manufacturing sectors accounting for over half of global primary nickel use, INSG data showed.
The country consumes roughly 1.3 million tonnes of primary nickel a year.
However, Chinese inventories of nickel ore have declined sharply following an ore export ban from top producer Indonesia since 2020.
This has led to a drop in nickel ore stored at Chinese ports to a near record low of 7.7 million wet tonnes as of Jan. 19, according to data from consultancy Antaike.
Refined nickel stocks in Shanghai Futures Exchange warehouses are at their lowest since June 2019, at 9,902 tonnes.
To compensate for the supply drop from Indonesia, China boosted its imports of ore and concentrate from New Caledonia. Shipments from there during January to November 2020 rose by 65.7% from a year earlier, INSG data showed.
WHAT IS THE OUTLOOK FOR PRICES?
It is unclear whether New Caledonian supply will be impacted by the coalition collapse so prices have largely moved sideways since the news emerged.
Analysts have yet to factor in any supply disruption from the government breakdown, although a burgeoning independence movement and acrimony over how to manage resources suggest the potential for a protracted disruption to normal services.
While other countries may ramp up shipments to fill any supply gap from New Caledonia, a tight market in China and recovering demand elsewhere will likely keep nickel prices well supported this year, said three trade sources.
Benchmark London Metal Exchange nickel prices gained 18.5% in 2020, and are up roughly 6.2% in 2021.
“Apart from the boost provided by stronger stainless steel demand from China, we have additionally seen supply shortage concerns provide support to the price over recent months,” said Jack Anderson, a senior analyst at consultancy Roskill.
“It is very possible that further supply shortage concerns will exacerbate those fears in the market and continue to lend support to the LME price,” Anderson said, forecasting average 2021 nickel price at $16,450 a tonne.
Wood Mackenzie’s Mitchell predicted the LME nickel price this year will peak at $21,000 a tonne around the third quarter before easing off towards 2022.
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