Quarterly Report – July 2021

The UAE’s non-oil economy remains on track to recover from COVID although pandemic-related disruptions are still visible for a number of businesses and sectors. Non-oil GDP has been expanding at 4.5% in 2021 and growth of 3.6% is forecasted for 2022.

Hailed as the world’s greatest event, Expo 2020 starts in Dubai this October. Expected to attract many visitors to the UAE, the Emirates is depending on this event - delayed for a year due to COVID - to boost its economy. Dubai welcomed 1.26 million visitors in the first quarter of this year, while last year numbers fell 67% to 5.5 million.

The GCC’s project market has remained under severe pressure since crude oil prices started declining and the emergence of COVID. With rising debt levels and record-high fiscal deficits as revenues dropped owing to the oil price fall, GCC governments have cancelled numerous projects while others have been thoroughly scrutinized for their viability in a low-spending environment. This affected the aggregate project market in the region even before the pandemic; as projects were completed, contractors were seeing declining workloads.

The value of projects planned and under execution in the GCC has remained around the US$ 1.7 trillion mark since 2017. The UAE and Saudi Arabia have accounted for more than 84% of the total market over the last two years, although the former has seen its share decline consistently over the years while Saudi Arabia’s share has been increasing, especially since the announcement of the big-ticket projects. The project market in Kuwait has seen gradual growth over recent years, with the total value of projects planned and under execution rising from US$ 86.1 billion at the end of 2015 to US$ 91.6 billion at the start of May 2021.

The nickel price surged in early 2021. Since the COVID-related collapse in March 2020 when the LME nickel spot price fell to US$ 10,800 per tonne, nickel use by China’s stainless steel mills has surged and triggered a price recovery. Combined with supply concerns surrounding production in New Caledonia and the Philippines, the nickel price climbed in January from US$ 16,800 a tonne to over US$ 17,800, and then to US$ 20,110 a tonne in February - the highest price since May 2014. This steep rise in nickel prices partly reflects speculative buying on electric vehicle (EV) demand expectations, but is predominantly driven by the demand recovery for global stainless steel production which is now significantly above pre-COVID levels. However, this recent surge in stainless steel production appears unsustainable and is expected to end shortly.

Anticipated increases in Chinese nickel consumption have fuelled expectations of a tightening nickel market - from a surplus of 100,000 tonnes in 2020 to a deficit of around 36,000 tonnes in 2023. The average nickel price for 2021 of around US$ 19,000 per tonne is up nearly 38% from last year.

While nickel prices are currently limited by the inventory surplus, expectations of future market growth and resulting tightness are likely to boost prices significantly. Consumption growth is expected to push prices to US$ 20,500 tonne by 2026 (in real terms), up on average almost 7% per year from 2021.

Speculative sentiment concerning the quantity and availability of nickel required for EV battery production is also perpetuating fears of a nickel supply shortage. World EV sales increased by over 46% in 2020 to 3.1 million units and are expected to reach 3.6 million in 2021 and then 11 million units in 2026. Nickel consumption is expected to outpace production increases, resulting in the aforementioned 2023 market deficit. Impacts of EV market growth could include an oversupply of nickel pig iron (NPI) that has driven growing price discounts to LME nickel and nickel sulphate since November 2020.

The shortage of available Class 1 nickel sulphides means growth in battery demand may need to be met by increased processing of NPI or laterite ore supplies. However, there is a debate over the actual conversion costs for NPI and laterite nickel to sulphates, with the refining process being highly energy-intensive and polluting. The excess of NPI currently within the market means the possibility of arbitrage between these forms of nickel has the potential to lower the premium to higher-quality nickel prices. Tsingshan, the world’s largest nickel and stainless steel producer, has signed contracts to sell 75,000 tonnes of NPI-derived nickel to Chinese battery interests - a product previously sold only to the stainless steel industry.