The G7 nations met up on 19th May 2023 in Hiroshima, Japan for their annual Summit. The G7 nations list consists of Canada, France, Germany, Italy, Japan, The United Kingdom, the United States, and the European Union. At the Summit, they discussed economics, politics and Russia’s 2022 full-scale invasion of Ukraine.
At the G7 Summit, the G7 countries revealed that they would be intensifying measures against Russia. They introduced new sanctions and export restrictions related to its war in Ukraine.
This article aims to look at how the new G7 sanctions against Russia could impact nickel trade in 2023 and the trend of nickel prices.
Russia’s Invasion and G7’s Efforts
The invasion of Ukraine began on 24 February 2022. Russian military forces entered key cities, such as Berdyansk, Chernihiv, Kharkiv, Sumy, as well as the capital city of Kyiv. The occupation turned into a full-blown humanitarian crisis as Ukrainians fled their homes, fearing for their lives.
In response, members of the European Union (EU), the US, the UK, and Switzerland imposed sanctions on Russia, affecting imports and exports of commodities. Other countries followed suit, including Australia, Canada, Japan, Singapore, South Korea, and Taiwan.
These actions include freezing Russian Central Bank funds and restricting banks' SWIFT access (a key system for global financial transactions). They also imposed sanctions on numerous Russian firms, government officials, oligarchs, and their families.
Furthermore, the G7 members collectively enforced a price cap of $60 per barrel on Russian oil and diesel last year.
G7’s new sanctions against Russia
At the Summit held last month, the G7 nations declared their intention to intensify actions and introduce additional sanctions and export controls directed at Russia in response to its military conflict with Ukraine.
Reuters reported that the recent efforts by the G7 nations were aimed at disrupting Russia's procurement of materials for military purposes, closing loopholes used to evade sanctions, further reducing international dependence on Russian energy, and limiting Moscow's access to the international financial system.
Another report by news site DW states that the United States' portion of the new sanctions will involve prohibiting exports to approximately 70 companies from Russia and other countries, as stated by an anonymous U.S. official mentioned in various media sources. The official added that 300 sanctions against individuals, entities, vessels, and aircraft would also be announced by G7 leaders.
Impact of G7’s new sanctions against Russia on Nickel Prices
The commodity markets have experienced significant market volatility due to the conflict between Russia and Ukraine, particularly influenced by the repercussions of export sanctions. These sanctions, imposed by Western countries, have had a global impact as both Russia and Ukraine are major exporters of various commodities.
Supply of Nickel from Russia
Russia’s Norilsk in particular, is a major global producer of nickel, accounting for approximately 18% of the world's nickel production.
According to Shanghai Metals Market, the main consumers of Russian nickel in 2022 were the Netherlands (49%) and China (36%), with the US accounting for 10%. In the first quarter of 2022, Russia exported 1,681 metric tons (mt) of pure nickel to the US, and this amount increased to 3,994 mt in the third quarter.
However, in 2023, Russian nickel exports to the Netherlands completely ceased, and the proportion of exports to the US declined from 12% in January to zero. This shift can be attributed to escalating geopolitical tensions. In response, the United States has increased its imports from Canada while reducing imports of Russian nickel. Canada's share of pure nickel exports to the US rose from 42% in January to 48% in February.
Despite the G7 countries boycotting Russian metals, imports of Russian metals by other countries have increased, indicating stable demand for pure nickel in various nations. Consequently, the impact of G7 sanctions on nickel prices is expected to be relatively insignificant unless Russian metals face a ban from major metal exchange warehouses.
China’s Electrowinning Nickel Production
China's production of electrowinning nickel is expected to significantly increase from 2023 to 2024. However, the demand for pure nickel is growing slowly, which could result in intense competition between Russian nickel and electrowinning nickel in China.
Nornickel, a major Russian nickel producer, has introduced a pricing mechanism for China, indicating that China's share as a consumer of Russian nickel will continue to rise. In 2022, China accounted for 36% of Russian nickel imports, which rose to 61% in January 2023 but dropped to 51% in February. Chinese companies have also been investing in electrowinning nickel production lines.
The acceptance of competitively priced new electrowinning nickel has increased in the Chinese market. As a result, the intense competition between Russian nickel and electrowinning nickel is expected to lead to a decreased share of Russian nickel exports to China in February 2023. China's own production of electrowinning nickel is projected to reach 3,300 metric tons in 2023, contributing to the growing supply.
Outlook for Nickel Prices
With the surge in electrowinning nickel production, and the stable supply chain of Russian metals, this could result in a global oversupply of pure nickel. According to the International Nickel Study Group, the nickel market is expected to experience a significant surplus in supply and demand, potentially causing a continued decline in nickel prices for the foreseeable future.
Nickel Futures Price Now
As of 22nd June 2023, Trading Economics reported Nickel futures are traded around $22,000 per tonne.
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