China and Indonesia are set to cut nickel production by at least 100,000 metric tons this year, as producers seek to limit losses after falling prices for the metal used to make stainless steel and in electric cars, analysts said.
Analysts added that further cuts would be needed if producers wanted to boost prices and remove surplus from the market, rather than simply stem losses.
Nickel prices rose in 2022, reaching a peak at a record level above $100,000 after expectations of reduced supplies from the main producer, Russia, after its war in Ukraine, which prompted the market to reduce bets on lower prices.
The metal is now trading at about $16,000 per ton after production rose in Indonesia, which last year accounted for more than half of the global supply of mines, estimated at about 3.4 million metric tons. Indonesian supplies represented 30% of the total in 2020.
As the extra supply exacerbates the impact of economic weakness that has depressed demand, Western miners, including BHP, which has made nickel the core of its green strategy, and six others, have frozen assets, delayed projects or cut production.
The cuts have so far removed more than 230,000 tonnes, or about 6%, of this year’s potential supply, according to Macquarie analysts. This was not enough to boost prices.
A source at one of the global producers, who spoke on condition of anonymity because he was not authorized to speak publicly, said deeper cuts were needed to prevent financial losses.
Consulting firm Benchmark Mineral Intelligence estimated that reductions of more than 250,000 tons would be needed to balance the global nickel market this year.
Most of the excess supply and high inventories are in raw nickel iron, a cheaper alternative to high-grade nickel for stainless steel production, analysts said. China and Indonesia represent 70% of global supplies of nickel, most of which is raw nickel.
“If we take the disruption allowance of 3% or 100,000 tons, about another 100,000 tons must be cut to balance the market,” said Jim Lennon, a strategist at Macquarie.
He added: “With the price of raw nickel reaching about $11,000 (per ton), there must be adjustments to the supply in China and Indonesia.”
Lennon estimated that the costs of producing raw nickel range between $10,000, $11,000 per ton, and $12,000 per ton in Indonesia and China, respectively, meaning that it is very difficult to make a profit.
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