Rotterdam, the main trade port in Europe. Photo by Ali A Suliman at Shuttlestock
S&P Global Commodity Insights dives into the impact of the recent US and UK government sanctions on Russian-origin metal in the nickel market.
In April 2024, the US and UK governments imposed further sanctions on Russia-origin metals in continued response to Russia’s invasion of Ukraine, which resulted in the London Metal Exchange (LME) and Chicago Mercantile Exchange (CME) blocking the trade of nickel, as well as aluminium and copper, produced by Russia on or after April 13.
The import ban is the latest action from the US and UK to clamp down harder on prohibited Russian metal ex-ports and reduce revenue to Russia from the trade of these metals.
The UK had previously announced its intention to ban Russian metals in May 2023 and legislation to directly ban Russian metal imports, including nickel, was introduced in December.
The US also separately put increased tariffs on various Russian metal imports in place in 2022 and on April 12 is-sued a ban on imports of Russian-origin nickel produced on or after April 13.
Thus, two countries jointly brought their key metals exchanges, the LME and CME, into the scope of the Russian metal trade ban, with the UK government saying at the time, the joint action reinforced a shared commitment to constrain Russia and support Ukraine.
UK-based Global Commodities Holdings also said April 16 that it would not accept Russian-origin nickel for delivery on its upcoming physical nickel spot trading platform.
What has been the impact on prices?
According to S&P Global Commodity Insights Metals and Mining Research estimates in its April Nickel Commodity Briefing Service (CBS) report, Russia was second only to China in the production of refined class 1 nickel — the only LME-deliverable primary nickel product.
The LME three-month (3M) nickel daily price reacted to the exchange’s decision by jumping to a seven-month high of $19,355 per metric ton (/mt) in trading on April 15, the first trading day following the exchange’s announcement, although it closed broadly unchanged day on day at $17,846/mt.
By April 22, the nickel price hit a fresh seven-month high of $19,739/mt, also boosted by reports that China was planning to stockpile nickel pig iron, which increasingly was being converted into an intermediate product, nickel matte.
The strength continued in May, with the official LME three-month nickel daily price reaching $21,080/mt by May 17, the highest level since early August 2023 and up 27.2% since the beginning of 2024.
Although S&P Global Commodity Insights expects the US and UK government sanctions and the subsequent LME ban on new Russia-origin nickel to support prices on the exchange near term, only limited impact is expected longer term to the global primary nickel market supply and demand fundamentals, with the market forecast to remain oversupplied to 2027.
The S&P Global Commodity Insights April CBS report fore-cast for 2024, unchanged from the March report, calls for nickel supply to total 3.64 million mt, moving up to 3.85 million mt in 2025 and 4.07 million mt in 2026, while the demand forecast was set at 3.51 million mt in 2024, 3.78 million mt in 2026 and 4.01 million mt in 2026.
“If Russia can still sell metal to customers directly while bypassing the LME warehouses, the overall supply picture won’t change as much since the majority of customers still accepting the Russian materials are already not getting them from the LME anyway,” one trader told S&P Global Commodity Insights.
A top aluminium producer said: “I think the ones that would be most affected [by the sanctions] would be traders because they won’t be able to deliver Russian material to the [LME].
“What people might do is to pressure premiums down for Russian ingots and push up other-origin premiums, but supply is still an issue so I don’t think it would be easy to do that,” the producer said.
Platts, part of S&P Global Commodity Insights, assessed spot market nickel briquette premium IW Rotterdam at $275/mt on May 17, nearly a 20% increase since April 12, just before the sanctions were implemented on April 13. However, the briquette premiums are marginally lower since the start of 2024, down from $287.50/mt on Jan. 5.
Has there been much impact on trade flows to the US and the UK?
Given that material from Russia accounted for only 0.68% of US refined class 1 nickel imports in 2023, S&P Global Commodity Insight analysts expects the impact of the sanctions imposed by the US government on US nickel imports to be negligible.
The US imported no Russian nickel in the first quarter of 2024, according to S&P Global Market Intelligence’s Global Trade Analytics Suite, whereas these imports totalled 638 mt in Q1 2023 and 1,680 mt in Q1 2022.
The EU’s imports of unwrought nickel from Russia also continued to decline. Although Q1 data is not yet available, in Jan-uary-February the bloc imported 3,294 mt of Russian nickel, down 41.5% year on year.
By comparison, China imported 6,282 mt of unwrought nickel from Russia in the first quarter, up 42% from 4,426 mt imported in Q1 2023.
Since 2022, previous rounds of international sanctions on Russia following its invasion of Ukraine have pushed Russia-based producer Norilsk Nickel to redirect its European and US exports of refined class 1 nickel — which can be used to produce battery-grade nickel sulphate — to China.
Trade data shows that Norilsk’s pivot made China the leading destination for Russia’s refined class 1 nickel exports in 2023, despite China rapidly building its own refined class 1 nickel capacity and having increased access to cheaper battery-grade nickel sulphate intermediate products, such as mixed hydroxide precipitate from Indonesia.
On May 17, Platts assessed spot battery-grade nickel sulphate with a minimum 22% nickel content and maximum 100 ppb magnetic material at Yuan 31,500/mt ($4,355.46/mt) DDP China, up from Yuan 29,000/mt on April 15 and 28.6% higher since the start of 2024.
More recently, in May, Chinese nickel sulphate prices are said to be finding support, despite soft demand, in response to concerns of tighter mixed hydroxide precipitate (MHP) supply, amid reports of delayed shipments from Indonesia to China.
What has been the impact on LME stocks?
In 2022, the Netherlands was the biggest importer of Russian class 1 nickel. Rotterdam is a major EU port terminal and home of an LME warehouse that contains most of the exchange’s nickel stocks.
For the first three months of 2024, the LME’s stocks of Russian-origin nickel made up 35%-36% of overall nickel stocks, with stocks ending March at 24,858 mt. The percentage had edged lower to 33% of total stocks at the end of April at 24,810 mt, according to LME stocks data.
However, this was still high compared with the whole of 2023, when the monthly percentage of LME nickel stocks that originated in Russia averaged 21%, with the range at 16%-23% between January and October and moving up to 26% in November and 31% in December.
What are the market expectations looking ahead?
S&P Global Commodity Insights expects the recent sanctions to cement China’s position as the main market for Russia’s refined class 1 nickel exports.
With China’s refined class 1 nickel import requirements likely to be lower as the country expands its output of the material, S&P Global Commodity Insights expects that Russia would have to offer its refined class 1 nickel to China at a discount to remain attractive to consumers there.
Norilsk’s output is among the lowest cost globally on an all-in sustaining cost basis, according to analysis from the S&P Global Commodity Insights Mine Economics team, which suggests the producer would be able to tolerate such discounts.
By Jason Sappor, Jacqueline Holman and Simran Jodha
www.spglobal.com
