Bank of America forecasts global nickel demand could drop by 2.8% year-on-year in 2020, which could result in a nickel surplus of nearly 150,000 tonnes.
"Nickel demand has had a comparatively weak start to the year, suggesting fundamentals were already handicapped before the current health emergency," the BofA commented in a research note. "This was heavily influenced by subdued stainless steel production globally."
"Beyond headwinds in the Western world, activity has been particularly challenged in China, where steel production decline by 6.3% year-on-year in January as mills churned out fewer tonnages, having oversupplied the market through most of 2019. Indeed, stainless steel inventories in Wuxi and Foshan have risen persistently of late."
The bank noted that there is "strong anecdotal evidence that stainless steel production could have declined by 20% sequentially over the lockdown after LNY [China's lunar new year], although this was still not sufficient to prevent further increases in steel stocks to record levels."
BofA said it was "encouraging that miners have been reacting to margin pressures" - pointing to care and maintenance measures taken by Vale (NYSE: VALE) at Voisey's Bay (about 40,000 tonnes of capacity), and Glencore (LON: GLEN) at Raglan (about 40,000 tonnes of capacity) as examples.
"The most meaningful supply overhang on the nickel market this year is set to be concentrated in 1H20 on the demand weakness in China (1Q20) and the Western world (2Q20)," it concluded.