1. Overview of LME abandoning metals produced in Russia
The United States and the United Kingdom announced on April 12, 2024new sanctions on copper, aluminium, and nickel metals produced in Russia, prohibiting the imports of these three metals from Russia immediately. In addition, the Chicago Mercantile Exchange (CME) and the London Metal Exchange (LME) located in both countries are ordered to stop the trading of these metals produced after April 13.
On April 13, 2024, the London Metal Exchange (LME) quickly responded to the above order by issuing its 24/171 announcement stating that it would immediately suspend the trading guarantees for Russian copper, aluminium, nickel produced on or after April 13, but would still accept eligible old stocks.
Russia is one of world's important producers of aluminium, copper, and nickel. Russia supplies about 6% of the world's aluminium, 5% of nickel, and 4% of copper, the data shows. The United States and United Kingdom have imposed sanctions on Russian metals aiming at limiting Russia's export earnings. Over the past two years, Russia has earned $40 billion from the sale of the metals, U.S. officials said.
2. Overview of Russia's nickel market and trade flow
According to the data of the United States Geological Survey (USGS), Russia holds the proven nickel ore reserves of about 8.3 million tonnes in Ni. content, ranking fourth in the world. In 2023, Russia produced 200,000 tonnes of nickel metal, also ranking fourth in the world.
Russia has long been the world's largest supplier of refined nickel and LME deliverable nickel products, and Russia's Norilsk Nickel Industry is one of the world's largest nickel producers and one of the world's major producers of platinum group metals and copper.
Norilsk Nickel produced 208,600 tonnes of nickel products in 2023, including 154,300 tonnes from Kola in Russia and 54,200 tonnes from Harjavalta in Finland (most of the raw materials still came from Russia), accounting for 6.3% of the world's total primary nickel production and 23.42% of global refined nickel production.
Source: Company report
According to Norilsk Nickel's 2023 annual report, the 2024 production guidance for its nickel products is 190,000 tonnes in Ni. content.
Concerning the trade flow, the main destinations of Russian nickel metal products are China and the Netherlands. China is the main consumer, while the Netherlands accommodates an LME warehouse which receives the most Russian nickel products – the Rotterdam warehouse.
Source: Company report
The United States increased the imports of Russian metals after the start of the Russia-Ukraine conflict in 2022, with a year-on-year increase of 70%, but reduced the imports since 2023. And no Russian nickel products have been exported to the United States since March 2023. Instead, the primary nickel imported by the United States mainly came from its northern neighbor Canada in recent years, accounting for 42% of the total, with Russia accounting for only 8%.
The United Kingdom has hardly imported Russian nickel since August 2022, when the LME suspended the trading of Russian metals in its British warehouses.
According to Norilsk Nickel's sales report, the Asian market became the focus of sales for the first time in 2023, accounting for 54%, of which the Chinese market took up the vast majority. The share of European market continued to decline since the Russia-Ukraine conflict, which dropped to 24%, while the American market accounted for only 10% of total sales.
3. Norilsk Nickel, a major LME deliverable nickel brand
At present, a total of 15 companies and 26 brands of nickel products are registered with LME, including Russian brands, all of which are owned by Norilsk Nickel. It is worth noting that the nickel plates and briquettes produced at Norilsk Nickel's Harjavalta plant in Finland are not included in the sanctions list this time.
Source: LME
Russian nickel products play a significant role in LME delivery. In 2023, the global production of deliverable nickel products totaled 865,500 tonnes, and Russian nickel brands contributed 154,300 tonnes, accounting for 17.83%, second only to China's Jinchuan nickel. But most of Jinchuan nickel consumed domestically in China, and the exports were less than 1,000 tonnes per month.
Regarding the inventory, according to the data released by LME, the LME nickel inventory stood at 68,900 tonnes as of March 28, 2024, of which 24,900 tonnes came from Russia, the country of origin, and accounted for 36.07% of the total, followed by Australia.
4. Russian nickel demand sags in China, with rising production of China's electrowinning nickel
Russia has always been the main source of pure nickel for China, accounting for more than 40% of China's pure nickel imports before 2020. However, the situation changed thereafter.
The import volume and proportion of Russian nickel declined with the extensive application of NPI in stainless steel manufacturing and the large number of nickel briquettes imported due to the rise of the electric vehicle industry.
China's imports of Russian nickel dropped further in 2023 despite Russia shifting its focus to China, primarily because the domestic production of electrowinning nickel was on the rise and the import costs of Russian nickel surged caused by the high US dollar. In 2023, China imported 38,000 tonnes of Russian nickel, the lowest in history.
Source: China customs
In 2023, China saw an increase of pure nickel production capacity by 134,400 tonnes/year, and the production reached 245,100 tonnes, an increase of 38.43% over 2022. It is expected that the domestic production capacity will continue to increase by 97,300 tonnes/year in 2024, and the production is expected to amount to 354,400 tonnes, an increase of 44.59% year-on-year.
In addition, Chinese companies have also built pure nickel projects in Indonesia, with a production capacity of 50,000 tonnes/year, and the production is expected to reach 45,900 tonnes in 2024.
After the electrowinning nickel projects were put into operation extensively in 2023, the domestic pure nickel market quickly became oversupplied, and several leading enterprises such as Huayou, CNGR, and GEM began to actively seek export opportunities and applied with LME to get registered as a deliverable brand.
As of present, these three companies have successfully registered five brands with LME, with one awaiting approval. The six brands have a total registered production capacity of 171,000 tonnes/year, and an expected production of 156,800 tonnes in 2024.
Data showed that from September 2023 - February 2024, the China's nickel inventory in the LME warehouses accumulated from 0 to 9,912 tonnes.
5. Conclusion
As one of the world's largest nickel suppliers, the nickel plate produced by Norilsk Nickel Industry is also one of the most important LME deliverable nickel brands. Therefore, LME prohibiting trading of Russian nickel produced after April 12 has made the market to worry about the supply of nickel for delivery in the future.
On the contrary, a large number of electrowinning nickel projects in China have been put into production since 2023, among which Huayou, GEM, and CNGR have successfully registered with LME as deliverable nickel brands. It is expected that in the future, the shortage of LME deliverables caused by the ban on Russian nickel will be filled by domestic electrowinning nickel.
Written by Aggie Hu, huchenying@mysteel.com