Nickel rally cooling down after pick-up in Indonesian ferronickel supply

NAVEEN MATHUR | Updated on January 16, 2018 Published on September 06, 2016

From being the worst performer with a 42 per cent loss in 2015 to being the second best in 2016 (YTD), nickel has come a long way. The silvery white metal has gained around 14 per cent (y-t-d), being second only to zinc.

The metal started the year at $8,800/tonne and went as high as $11,030 in August before settling down currently near 10,000 levels on the LME.

Stainless steel production accounts for about two-thirds of nickel demand and hence, muted demand from the stainless steel industry has hurt the metal. Falling Chinese demand hurt nickel prices in 2015 and the first quarter of 2016, after which the metal surged sharply in May 2016.

Chinese nickel ore imports in the first four months of 2016 were 4.16 million tonnes (mt), a 38 per cent decline compared to the same period last year. In May, the Philippines dominantly supplied 3 mt, the highest level in seven months, taking the total to 7.16 mt and taking care of 97 per cent of the China’s total purchases.

In June and July also, Chinese imports from the Philippines have been more than 3 mt. Despite this, imports of ore in the first seven months of 2016 fell to 14.5 mt — down about 26 per cent.

In August, prices regained momentum and crossed the 11,000 mark on the LME after the new Philippine Government elected Regina Lopez, a passionate environmentalist, to head the Department of Environment and Natural Resources.

Right at the outset, she warned completely against the use of open pits to extract minerals, thereby threatening to potentially disrupt supplies and limit ore exports. This came as a big blow to China as the Philippines is the largest nickel ore supplier to China after Indonesia imposed a ban in 2014.

However, the impact was quite short-lived as the biggest producer, Nickel Asia, which accounts for 40 per cent of the Philippine nickel ore production, complied with international mining standards along with three other major producers. Also, the fineprint of Chinese import figures show that there has been a big jump in shipments of ferronickel, an intermediate stage of the metal that contains both nickel and iron.

The China factor

China’s imports of ferronickel from Indonesia were 74,493 tonnes in July — more than five times the amount taken in the same month a year earlier — and more than four-fold increase in the y-t-d imports, giving the nation a 70 per cent share of Chinese imports of the intermediate.

The nickel content in ferronickel exports from Indonesia is equal to about 4 mt, slightly less than the 4.13 mt ore export loss in the Philippines so far this year. So, rising ferronickel exports from Indonesia is an indication that China is already changing the form in which it imports the metal much before the anticipated shortage.

Talking about inventories, nickel stocks at the LME have been stable near 370,000 levels since July. The stocks just moved 1.2 per cent higher in August and 16.5 per cent in 2016 (y-t-d).

Hence, we expect nickel prices to trend lower from a two-month perspective and LME nickel (CMP: $10,070/tonne) might turn lower towards $9,750 while MCX nickel (CMP: ₹670/kg) will head down towards ₹630.

The writer is Associate Director, Commodities & Currencies Business, Equity Research & Advisory, Angel Broking. Views are personal.

Published on September 06, 2016
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