Key Takeaways
- Nickel prices reached a three-week high due to concerns over sulphur supply disruptions.
- Indonesia, the world's largest nickel producer, relies heavily on Middle Eastern sulphur imports.
- Analysts predict increased production costs for nickel extraction processes.
Nickel prices have surged to their highest levels in three weeks due to renewed concerns over sulphur supply disruptions. The metal used extensively in stainless steel and rechargeable batteries saw its benchmark three-month price rise by 1.8% to $17,110 per metric ton as of 0900 GMT on Thursday.
Analysts from Jinrui Futures highlighted the impact of tight sulphur supply expectations, stating that this could lead to an upward shift in cost expectations for the high-pressure (HPAL) acid leaching process. This process is crucial for extracting nickel from ore and relies heavily on sulphuric acid, which Indonesia imports from the Middle East.
Indonesia, as the world's largest producer of nickel, depends on Middle Eastern sulphur for about 75% of its needs to produce sulphuric acid for leaching. U.S. and Iranian blockades of the Strait of Hormuz have disrupted these shipments, exacerbating supply concerns. Macquarie analyst Jim Lennon noted that this disruption has pushed Indonesian producers from being at the bottom of the cost curve to now being at the top, with a $10,000 per ton production cost increase.
The Indonesian government is also seeking to restrict nickel ore allocations to HPAL producers, adding further uncertainty to the market. Analysts are waiting for the results of midyear applications for extra supply, which could provide some clarity on future production levels and prices.
Elsewhere in the London Metal Exchange (LME), other metals moved higher as well. Copper nudged up 0.1% to $13,599 a ton, supported by weaker U.S. inflation data and hopes of a more dovish Federal Reserve stance. Aluminium added 0.9% to $3,178, zinc gained 0.9% to $3,579, lead rebounded 1.1% to $1,871.50 after hitting a 15-month low on Wednesday, and tin firming 1.3% to $53,305.
The market remains closely watching the situation in the Strait of Hormuz and any potential changes in Indonesian government policies that could affect nickel production costs and supply. The current environment suggests that nickel prices may remain volatile as long as these concerns persist.
