ab15 February 2024Global Research and Evidence LabGlobal CommoditiesNickel: Under PressureNickel: Supply continues to be cut but this won't be the last BHP raised the possibility of putting Nickel West into care & maintenance while simultaneously writing down its West Musgrave Nickel project and placing the Kambalda concentrator into C&M. This is the latest in a series of supply revisions out of the industry in response to the sharp fall in nickel prices (link). With low prices forecast to persist on a) tempered EV demand growth expectations and declining nickel battery share (to LF(M)P cathodes), and b) continued Indo supply growth, we cannot rule out more closures (GLEN is due to update on Murin Murin shortly) and while most supply has been ex-Indo, our global team highlight that higher-cost Indo supply isn't immune either (link). Supply: Another closure but the focus is on IndoOur global/Indo team have kept close to the supply side cuts that have accrued since mid-2023 and as the nickel market has come under pressure (link, see Figure 1). Alongside BHP's latest moves, we highlight GLEN's plans to sell out of its Koniambo Nickel JV in New Caledonia (link) earlier in the week as yet another example of the pressure facing ex-China/Indo supply. With spot at US$7.30/lb, prices are well into the cost curve (~70%). While quickly growing Indonesian supply has been a significant contributor to weaker fundamentals, our Indonesia team highlight that the market could be overestimating its magnitude given a) an accelerated decline in Indonesia's ore grades, b) limited major discoveries, and c) rising mining costs and continued geographical/logistical challenges (see Igor Putra's APAC Focus report: Indonesian Nickel Supply Growth...Below the Surface). Demand: A smaller share of a smaller pie?While sentiment towards EVs has waned somewhat (albeit we still see global EV demand growing 26% y/y in 2024E) of greater concern perhaps for Nickel is the continued lift of the LFP/LF(M)P cathode battery types which have enjoyed a renaissance and increased from ~15% to ~40% cathode market share over the course of the last three years. With battery demand ~15% of total demand today, and expected to grow 17% CAGR to be ~30% of total demand 2030E, shrinking NCM(A) share is certainly a concern that we continue to stress-test. In our view, as the EV thematic stalls on affordability (amongst other reasons), it wouldn't be unreasonable to assume an even higher LFP share than what we forecast as OEMs prioritise price over performance. UBS View: Indo and EVs the key to Nickel's futureWhile it's perhaps too early for us to say that we are closer to the end of the down-cycle, we continue to focus on a) the evolution of Indonesian supply and b) the EV/cathode outlook with respect to Nickel consumption as the key levers to future price direction. Thi...
