MettaInsights: Nickel Commodity Market
Mar 16, 2022
What is Nickel?
Nickel is a hard, silvery-white metal. It is a fairly good conductor of electricity and heat and is one of only four elements (cobalt, iron, nickel, and gadolinium) that are ferromagnetic (magnetized easily) at room temperature. Nickel is the fifth most abundant element on Earth. However, it is 100 times more concentrated below the Earth’s crust than in it, according to Chemicool. In fact, nickel is believed to be the second most abundant element in the Earth’s inner core, with iron being the first by a large margin. (1)
What is Nickel Used For?
Nickel-containing products play an important role in our daily lives. Compared with other materials, nickel-containing products possess better corrosion resistance, greater toughness, more strength at high and low temperatures, and a range of special magnetic and electronic properties. Therefore, most nickel production is used for alloying elements, coatings, batteries (including EV ones), and some other uses, such as kitchen wares, mobile phones, medical equipment, transport, buildings, power generation, and jewelry. (2)
The use of nickel is dominated by the production of ferronickel for stainless steel (66%). However, it is also used in the production of non-ferrous alloys (12%), alloy steels (5%), plating (7%), foundry (3%), and batteries (2%). (2)
Price Performance in 2021/2022
Much like other industrial commodities, Nickel had a stellar 2021. The commodity changed hands at ~$16,550/tonne on January 1, 2021, and entered 2022 at a price of ~$20,700/tonne, an increase of about 25%. For the past 10 years, the per tonne value of the silvery-white commodity has moved between $15,000 and $20,000, so although the increase was significant, it wasn’t unusual. (5, chart below)
Since the start of 2022, the price of nickel has been increasing steadily, reaching levels unseen for over 10 years – about $25,000/tonne. It was expected to continue its gradual increase throughout 2022. However, on March 8 nickel experienced its own “black swan” event. On that day, the nickel market simply broke.
According to Bloomberg (3): Just after 6 a.m (London time) on March 8, the price of nickel passed $100,000 a tonne.
Why did it happen?
Three factors played an instrumental role in the “short squeeze” that boosted nickel’s price to multi-year highs. But first – what is a short squeeze?
A short squeeze is an unusual condition that triggers rapidly rising prices in a stock or other types of financial assets. It involves an asset that is heavily shorted by traders, but whose price increases unexpectedly. That upward move forces shorters to cover their losses by buying the asset while at the same time attracting other traders who are also buying the asset in order to potentially profit from an even higher price in the future. Both of these actions further increase the asset’s price and lead to a self-reinforcing virtuous cycle that pushes the price up rapidly.
The three factors that contributed to Nickel’s sporadic and rapid price boost were Xiang Guangda (Chairman of Tsingshan Group, the largest stainless steel producer in the world with revenues > $40B/year), a long buyer Glencore Plc, and the Russian-initiated war in Ukraine. (3)
Mr. Guangda’s strong conviction that the price of Nickel will fall in the next months due to a technological innovation developed by his own company (an ability to convert Nickel Pig Iron into battery-grade nickel sulphate) led him to take an enormous short bet on the London Metals Exchange (LME). Glencore, on the other hand, matched that bet in the opposite direction and purchased between 50% and 80% of all physical delivery nickel contracts on LME in addition. (4) With such large, opposite bets by Mr. Guanga and Glencore, huge losses for one of the two sides became a certainty.
The bet was settled by Russia’s invasion of Ukraine. With Russia being the fourth largest nickel producer in the world (6), the fact that nickel exports are not yet unaffected by western sanctions did not account for much for European traders – they started to look for alternative suppliers and went on a buying frenzy. (3) (4, tweet screenshot below)
Analysts believe that the blistering nickel market price may not sustain longer, partly because fundamentals did not fuel the spike – it was triggered by a short squeeze. (7) Nonetheless, since nickel inventories are shrinking and the supply coming from Russia cannot be predicted – nickel prices are expected to stay at historically high levels. UBS increased its price target for 2022 year to an average of $26,000 a tonne, up from the previous forecast of $24,000 a tonne. (7)
Trading Economics also expects nickel’s price to stabilize at a much lower level than the current one – around $21,000 a tonne. (5, also chart above)
Nickel is expected to trade at 22,805.04 USD/MT by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 21,182.95 in 12 months time.
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1. Pedersen, Traci. Facts About Nickel. Livescience.com. Published on: September 23, 2016. Accessed on: March 16, 2022. URL.
2. Metalpedia. Uses of nickel. Accessed on: March 16, 2022. URL.
3. Farchy, Jack et al. The 18 Minutes of Trading Chaos That Broke the Nickel Market. Bloomberg.com. Published on: March 14, 2022, 6:01 AM GMT+2. Updated on March 15, 2022, 12:57 AM GMT+2. Accessed on: March 16, 2022. URL.
4. Stackhouse, Chris. A tweet thread on nickel. Accessed on: March 16, 2022. URL.
5. Trading Economics. Nickel. Accessed on: March 16, 2022. URL.
6. GlobalData. The top five Nickel producing countries (Thousand Tonnes, 2021). Accessed on: March 16, 2022. URL.
7. Wulandari, Fitri. Nickel price forecast: Record high prices seen short-lived. Capital.com. Published on: March 11, 2022. Accessed on: March 16, 2022. URL.
Check out the rest of the MettaInsights research articles to educate yourself on commodity markets such as Palladium, Zinc, Coal, European Union Emission Allowances (EUAs), Wheat, Uranium, Brent Crude Oil, Natural Gas, Lithium Carbonate, Iron Ore.
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