Login:
Password:
Subscription
 SEARCH
MKT&IND REPORTS

Supply deficit on the nickel market still taking its time


The global nickel market was surprisingly amply supplied last year despite the export ban in Indonesia. This put pressure on the price. However, most producers in China are probably no longer profitable at the current price level, so we could see substantial production cuts there. This would reduce supply on the world market and should drive nickel prices up during the course of the year, Commerzbank said in a report.

The nickel price had fallen to a 13-month low of $13,600 per ton at the beginning of March. It is therefore well on its way to hitting its 2013 lows. If the price were to fall below these levels, we could see technical follow-up selling which would doubtless further exacerbate the nickel price slump in the short-term.

The oversupply on the global nickel market is chiefly responsible for the low price in our opinion. The International Nickel Study Group (INSG) reported recently that the nickel market had shown a supply surplus in December for the seventh month running, supply outstripping demand by 94,300 tons in 2014 as a whole. Although this meant that the surplus was just shy of 60,000 tons or 38% below the previous yearТs level, it was significantly higher than the INSG had still been estimating in mid-October. Contrary to earlier fears and the view of many market participants, the global nickel market is thus very amply supplied despite the Indonesian ore export ban that has been in place since the beginning of 2014. The INSG envisages a moderate supply deficit of 20,000 tons in 2015, though we believe this could prove overly pessimistic given the trend in recent months.

The production of nickel pig iron (NPI) plays an important role in supply and thus market balance. NPI is manufactured solely in China and accounts for nearly a quarter of worldwide nickel production. In January, the Chinese analyst firm Shanghai Metals Market (SMM) estimated that China would produce 400,000 tons of NPI this year. According to its figures, 455,000 tons of NPI were produced last year because sufficient raw material was available in spite of the Indonesian export ban. According to SMM, however, virtually all NPI producers are unprofitable at prices below $14,000 per ton Ц many already have problems at prices of below $16,000. If the nickel price were therefore to remain low for any length of time, we would doubtless see substantial production cuts Ц with correspondingly negative effects on the global nickel supply.

Nickel ore stocks in five of the countryТs major ports have meanwhile dwindled to 11.8 million tons, according to SMM. They have thus fallen by roughly half within one year. This is primarily due to the Indonesian ban on nickel ore exports, which resulted in the countryТs nickel ore exports virtually drying up several months ago. Until February 2014, Indonesia was the biggest supplier of nickel ore to China Ц the Philippines has meanwhile assumed this role. That said, Philippine nickel ore is of lower quality than Indonesian ore. What is more, even the Philippines exported only 2.7 million and 2.4 million tons of nickel ore to China in November and December respectively Ц only half as much as during the summer months, for example. January saw exports decline still further to just 1.2 million tons. The low exports were due in part to the weather (monsoon season) Ц all the same, stock levels in China are likely to continue to decrease for the time being.

Whereas nickel ore stocks in China are thus at risk of becoming tight, the LMEТs warehouses are better supplied than ever before with (refined) nickel. LME stocks have been increased almost continuously for over three years now: by 55% in 2012, by 86% in 2013 and by 59% in 2014. At around 430,000 tons, they are currently 5% above the level they were at when the year began. Although almost 120,000 tons of the LME stocks are currently earmarked for shipment, this also means that approximately three-quarters of the stocks are still freely available to the market. Any possible risk of a nickel shortage should therefore be initially easy to absorb.

Production is being steadily expanded in the stainless steel industry, the biggest consumer of nickel by far. MEPS, a research institute specialized in analysing the steel markets, estimates that 41 million tons of stainless steel were produced last year, 7.6% more than in the previous year and more than ever before. 2015 looks set to see production further increased by almost 5% to 43 million tons. China in particular is contributing to this growth Ц it meanwhile accounts for more than half of global stainless steel production. The high stainless steel production points to ongoing robust nickel demand. Nonetheless, there are high overcapacities, especially in the Chinese stainless steel industry, which was reflected last year in record-high exports (3.85 million tons).

Besides the supply and demand data, it is worth taking a look at the market positioning of speculative financial investors, figures which have been published by the LME since the end of July 2014. They show that the decline in the nickel price went hand in hand with Ц and indeed was exacerbated by Ц a large-scale withdrawal on the part of this group of investors. If sentiment among speculative financial investors were to turn, this should contribute to rising nickel prices.

In our opinion, the global nickel market is far better supplied at present than many market participants believe. This will preclude any significant increase in prices, which are only likely to pick up again once supply is noticeably reduced. We have downwardly revised our nickel price forecast Ц which was already below the market consensus Ц to $15,500 per ton by yearТs end.

End

19.03.2015 17:08


WEEKLY REVIEW HIGHLIGHTS
Supply deficit on the nickel market still taking its time
WGC: Gold recycling to remain low throughout 2015
Still enough uncertainty on gold market
LONDON FIXINGS
M1M6Y1
CBR INTEREST RATES
M1M6Y1
STOCK QUOTES
M1M6Y1
CBR CURRENCY EXCHANGE RATES
M1M6Y1

Site map | Subscription | Home

Phone.: (7-495) 974-76-64. Fax: (7-495) 692-36-90
Information department: gold@1prime.ru
Marketing department: market@1prime.ru
Sales department: sales01@1prime.ru
Copyright © 2005-2017 PRIME. PRIME Gold /Gold Mining News
All rights Reserved.
–ейтинг@Mail.ru Rambler's Top100