Nickel: glut or shortage?

China , Commodities , Indonesia , Metals , Nickel , the Philippines Oct 27, 2014 2 Comments

NickelIn intraday on Friday, nickel prices hit a seven-month low of $14,980 a tonne. Stocks in LME warehouses hit another all-time high of 378,132 tonnes. Nickel at one stage was looking like being the star of 2014 in base metals, but its big rises have been eroded and it is now just 9 per cent ahead for the year.

Nickel prices have sunk to their lowest level since March, as slowing economies in Europe and China rattle investors, while a financing scandal in China has prompted companies to dump tons of nickel and other metals on the market.

Nickel fell into a bear market last month on signs that output will meet demand even after Indonesia, the world’s largest producer of the metal from mines, implemented a ban on exports of unrefined ore in January. Prices surged as much as 56 percent this year to a peak in May on concern the restrictions would limit supplies. Instead, the Philippines ramped up its shipments to China, where a slowing expansion threatens consumption.

Nickel was overbought by investors earlier in the year, but the market has turned against the metal now that global growth is looking less exciting,” John Meyer, an analyst at SP Angel Corporate Finance LLP in London, said in a telephone interview. “This, for us, is going to be yet another year of metal surpluses.”

Nickel hitorical price

The market has also seen an influx of supply as trading companies sell stockpiles used to back loans following a financing scandal at Chinese ports. Banks have tightened credit for loans backed by industrial metals in the wake of allegations that traders at the ports of Qingdao and Penglai fraudulently used the same stockpiles of metal as collateral to secure multiple loans. As a result, investors have sold holdings to repay debts or to reduce their stockpiles.

Huge LME inventories, especially in Asia, have worsened nickel’s fundamentals,” said Hwang Il Doo, a senior metals trader at Korea Exchange Bank Futures Co. in Seoul. “Without a recovery in China’s consumption, it won’t be easy to rebound to levels seen earlier this year.”

“Chinese nickel and stainless-steel markets are not very strong,” Michael Widmer, the head of metals research at Bank of America Merrill Lynch in London, said in a telephone interview. “On the back of that, you don’t have the buying support from the Chinese that would be needed to balance the market, and as a result you have a build in these LME inventories.”

The metal’s global surplus fell 85 percent in the first eight months of this year to 13,700 tons, compared with the same period in 2013, according to a report e-mailed today from the International Nickel Study Group. Consumption will outpace supply by 20,000 tons next year, the group said.

To be sure, worries about future nickel supply are keeping some investors upbeat on the outlook for prices.

According to Natixis, uncertainty surrounds:

  • The strength of Chinese demand for nickel
  • The size of unreported nickel (and stainless steel) inventories held in China
  • The likely volume of NPI produced in 2015H1 as a ban on exports of Indonesian ore combines with seasonal weakness in Philippine supplies
  • The pace at which Indonesian nickel ore is likely to return to the global market in the form of 4% NPI

Natixis’s central forecast anticipates a period of deficit during first half of 2015, resulting in an average LME nickel price of around $19,000 a ton over 2015 as a whole, although there is scope for substantial variation around this mean. BNP Paribas predicts a surplus of just 15,000 metric tons of nickel, or 0.8% of forecast global production of 1.92 million metric tons in 2014. Citigroup is forecasting that prices will leap to nearly $23,900 a ton next year and $26,500 a ton in 2016.

Other analysts and investors are confident Indonesia’s export ban will remain in place, which they say could lead to a shortage of nickel in 2015. China, where an economic slowdown hasn’t proven as severe as some economists had feared, is running through stockpiles to make up for the lack of supply from Indonesia and may soon need to buy more from the global market, driving up prices. At the same time, steel output in the Americas is rising, boosting demand for nickel in those markets.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

2 Comments

  1. Very informative. Thank you for publishing this. One of industries is copper slag for China. And China has just put a ban on the importation of copper slag in the past week or so. Do you have an article on this at all? Or are you able to write one?
    This has effected China in a big way, as many places use high content copper slag for their refining, and many many copper slag suppliers and even copper refiners are only just learning of the changes (Including us).
    Might make an interesting article.
    I’m in the heart of China now and have found that this will have a huge effect on copper in China.
    Hope this info is helpful

    Best Regards

    Michael Stronach

  2. Nickel price forecast of 19000 and 23900 in 2015 looks improbable because:
    1) Global Economic Demand side scenario is still not looking promising
    2) Even if Indonesia continue with ban on exports of raw material, supplies of value added products will start in 2015 and will increase later on
    3)Threat of interest rate increase in US in 2nd half of 2015 will keep prices of commodities in defensive mode in First Half of 2015, but prices may move up in 2016 (mainly on China play) despite interest rates hike by US Fed.
    4) Technically in immediate- term prices may recover back to 17000 -17500 levels in Novemeber before moving back towards 15000 and even lower levels infirst half of 2015. My best guess is Nickel may Average around or slightly lower than 15000 in 2015

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