LME nickel

Our Stainless MMI inched up 2% in October. However, it was at the beginning of November when prices surged. Three-month London Metal Exchange nickel jumped above $11,000/mt, the highest level since August 2015. By the way, we predicted this move just a few weeks ago.

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Robust Chinese demand for nickel and other metals has broadly supported a price rebound from multiyear lows that were hit earlier this year. Not only nickel, but the whole metal complex is hitting new highs. When investors turn bullish in the metal sector, any bullish news can make the individual metal increase in price and, nickel is particularly enjoying a bull narrative.

Bullish Industry Fundamentals

First, Indonesia recently announced that the country will “almost definitely” keep in place a ban on nickel ore and bauxite exports. Just a few days ago, nickel investors were concerned that Indonesia was considering lifting the ban. Now that those fears have waned, investors seem willing to chase prices higher.

Stainless_Chart_November-2016_FNL

Second, The Philippines announced that it will prolong the ban on new mines, reviewing all environmental permits previously granted to nickel producers. The announcement dashes industry hopes that some restrictions may be lifted following the audit that was finished in August.

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The news come after a quarter of the country’s miners have been closed with another 20 of them under the risk of suspension.

Bullish Price Action

On top of the above, we are seeing a very constructive price action. After nickel jumped 25% from June to August prices rested in a narrow range for the next three months. Despite a strong dollar in October, investors were unwilling to sell nickel. Now that momentum for investing in the industrial metals complex is picking up again, we expect nickel prices to work higher into 2017.

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3M LME Nickel. Source: MetalMiner analysis of fastmarkets data

Three-month LME Nickel. Source: MetalMiner analysis of Fastmarkets.com data.

After a two-month rally in June and July, nickel prices are retracing in August. What caused nickel to rally and what is causing prices to fall in August?

Philippines Supply Down

In June and July, nickel rallied as the Philippines reviewed all existing mines in order to close those that had adverse impacts on the environment. At least eight nickel mines have been shut down so far this year, cutting around 10% of the country’s capacity.

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The Philippines is by far the largest nickel ore supplier to China since Indonesia imposed an export ban for unprocessed material back in 2014. Lower production is already showing up in the export numbers. For the first seven months, China imported 13.84 million metric tons from the Philippines, down 27% from the same period last year.

The current disruptions in the Philippines have no doubt tightened the market for nickel ore triggering a price rally this year. However, will this shortage in China’s nickel-pig iron industry translate into a shortage of nickel in the global market?

Indonesian Refined Nickel Supply Up

While supply of nickel ore to China is declining, supply of refined nickel to China is rising. For the first seven months, China’s imports of ferronickel from Indonesia have surged more than four-fold to 390,700 mt. Comparing apples to apples, the nickel content of the year to date ferronickel exports equal to about 4 million mt of nickel, slightly less than the 4.13 mmt loss in the Philippines so far this year.

For this reason, we hear some analysts saying that China isn’t importing less nickel, it is just changing the form in which it imports the metal.

What’s Different From 2014?

Nickel prices surged back in 2014 to later come down. Source: MetalMiner analysis of fastmarkets data

Nickel prices surged back in 2014 to later come down. Source: MetalMiner analysis of fastmarkets.com data.

Back 2014, nickel prices surged as Indonesia prohibited ore exports. However, prices sold-off later on as miners in the Philippines moved into the trade. This time, it’s the other way around. Environmental restrictions are shrinking supply in the Philippines while Indonesia is making up for that loss.

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While prices have fallen in August, so far the decline seems like a normal price retracement after nickel gained over 30% in June and July. Also, there are two other factors that make us think that the decline won’t be as severe as it was in 2014:

  • Back in 2014, nickel prices rose independently while the rest of the industrial metal complex was falling. This time, it’s not only nickel but we also see many industrial metals rising, which bodes well for rising nickel prices.
  • It’s barely been a month since the Philippines started to shut down mines and volumes may be squeezed further after the shutdowns accounting for about 15% of output.

What This Means For Metal Buyers

The supply and demand balance for the coming months will depend on how many more mines the Philippines shut down versus how much more ferronickel/refined nickel Indonesia continues to supply. So far, we believe it’s to early to call for the end of nickel’s bull run.

Similar to copper, nickel is not metal investors’ favorite child right now. While oversupply is still and issue, only a weaker dollar and further Chinese stimulus could lift prices. However, that wasn’t the case during the month of May, driving prices down. Our Stainless MMI was no exception, falling 4%.

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For the past six months, every time three-month London Metal Exchange primary nickel approached $9,500 per metric ton, prices fell short. It happened in March and again in May.

Stainless_Chart_June-2016_FNL

Recently, Russia’s Norilsk Nickel, the world’s largest nickel miner, said that in order for a sustained recovery to happen, more cuts will have to materialize. That’s a very unusual statement for a metal producer as they tend to talk up the market. According to the company, over 20% of the global nickel supply needs to be cut if we want to see a sustained recovery in prices.

If Norilsk has it right, it will take some time until we see a significant recovery in prices since, so far this year, there hasn’t been any supply cut announcements. The latest significant production cut was announced late in 2015. Despite its non-optimistic outlook, the company is moving ahead with the development of new projects. Norilsk Nickel is still profitable, aided and abetted by co-mined minerals and the depreciation of the Russian Ruble.

U.S. Prices Buck Global Trend

Not only Norilsk but producers that are loss-making at current prices seem redundant to shut down capacity. Glencore and fellow Australian miner BHP Billiton have recently said no more than they “may” close capacity at Murrin Murrin and Nickel West, respectively.

Here in the U.S., however, anti-dumping actions are having an effect and stainless, cold-rolled prices have been steadily rising this year. The three base price increases for 2016 have been firmly implemented on spot business. Although contractual business may have been protected from immediate base price increases, the next contract periods will definitely reflect the higher base prices.

U.S. mills have been trying all year to recoup unrealistically low base prices from 2015. The anti-dumping and countervailing duty actions filed by U.S. stainless mills against China have solidified the base price increases as well as disrupted the supply of several niche products.

All 200, 300 and 400 series alloys have been impacted by the 2016 base price increases. The three stainless base price increases for 2016 have cumulatively impacted 304 stainless base prices by at least $0.10 per pound on base gauge and almost $0.13 on 22 gauge. 430 stainless has risen by close to $0.08 per pound. 409 has risen by $0.06 per pound. Several sources speculate that there could be another round of increases on the horizon because U.S. cold-rolled stainless supply is tight.

U.S. Supplies Tighten

Mill lead times remain extended with North American Stainless (NAS) maintaining a controlled-order-entry mechanism. Some service centers also report that the light gauge stainless is limited and available only for customers who also place base gauge volumes.

Buyers of metal need to have well-established supply chains for all of their cold-rolled stainless products. NAS and Outokumpu Coil Americas remain the core suppliers of austenitic commodity products.

Two Producers Inherit Commodity Stainless Market

AK Steel is not focused on nickel-bearing commodity stainless grades. Allegheny Technologies’ Flat-Rolled Products segment continues to seek higher-value stainless and has limited its exposure to commodity stainless.

In theory, Allegheny and AK Steel could relieve some of the long lead times metal buyers are experiencing, but their mill capacity is focused on supplying other products or has been idled. The anti-dumping and countervailing lawsuits against China have impacted the Asian supply of cold rolled stainless. For instance, Taiwanese rerollers using Chinese hot band for bright annealed have limited new offers.

POSCO, which has South Korean and Vietnamese stainless mills, is being cautious with offers into the U.S. market. Bright annealed and light-gauge, cold-rolled stainless remain the product categories most impacted by the trade cases.

Compare Prices Wtih The May 2016 MMI Report

Stainless flat-rolled pricing remains poised for further base price increases. Stainless demand is expected to remain around the same volume in the U.S. The trade cases against China are proceeding in a multitude of steel products, not just stainless. Although domestic mills are capable of producing more stainless volume, the appetite for AK Steel and Allegheny does not appear to be there yet. Until then, NAS and Outokumpu will be the core commodity stainless producers. Metal buyers will need to look to alternative sources for niche products and perhaps should look to European mills such as Aperam or ThyssenKrupp AST as Asian importers are spooked by the trade cases against China.

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Our Stainless MMI remained steady at 51 points. However, we currently see some factors that could lift prices in the short term.

Stainless Anti-dumping Case

On March 4, the U.S. Commerce Department launched an anti-dumping and countervailing duty investigation into Chinese imports of stainless steel sheet and strip, for possible illegal subsidies and selling prices at below cost to illegally gain market share. A preliminary determination of injury to U.S producers is scheduled by March 28.

Stainless_Chart_March-2016_FNL

China’s Ministry of Commerce didn’t respond well to the this new case, arguing that simply restoring prices via protectionist means is not the solution. Chinese steel firms have already been impacted by trade cases. Recently the Commerce Department had imposed 266% preliminary duties on imports of cold-rolled steel from China, punishing Chinese steel makers for dumping or selling below cost. In December, China received a dumping margin of 266% on corrosion-resistant steel products.

Compare Prices With The February 2016 MMI Report

These tariffs have helped U.S. imports come down this year. That led to lower inventory levels here and have given U.S. mills the ability to rise prices. Steel prices climbed over the past few weeks, and stainless prices could follow. With the threat of anti-dumping lawsuits looming, the volume of imported stainless sheet and strip had already been diminishing, which should be seen in the upcoming months. The lack of imports has already pushed out domestic lead times and could create a supply shortage once service center restocking starts. However, it’s still questionable whether prices will hold just on import tariffs alone. Low international prices will add downside pressure if stainless domestic prices rise, especially since China is the only named party.

Nickel Prices Could Rise Short Term

Nickel is the worst performer among base metals this year. However, we are seeing some price strength in the industrial metal complex that could push nickel prices higher in the short term, especially if the US dollar continues to weaken.

Indonesia’s energy minister said in February that the country could ease the ban on nickel ore exports. Indonesia was China’s top nickel ore supply country prior to the ban, which enabled the Philippines to catch up.

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Back in 2014 when the ban was implemented, nickel was trading above $15,000 per metric ton. However, Indonesian companies didn’t expected that nickel would be trading today at half that price.

Indonesia Might Ease Export Ban

Because of falling nickel prices, many of the smelters that miners intended to develop have not materialized. Now, the government is going to review its export ban policy as miners struggle and Indonesia´s smelting capacity will not be sufficient by next year amid miners’ unwillingness to develop those costly smelting operations.

The removal of the export ban would add more nickel supply to international markets, possibly driving prices down while demand is weak, especially in the energy sector.

What This Means For Metal Buyers

Stainless prices could experience a short-term bounce on new import tariffs and overall strength across the base metal complex. However, prices will likely struggle to rise longer term while demand remains weak and producers don’t cut production in a big way.

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The monthly Stainless MMI® registered a value of 59 in September, a decrease of 7.8% from 64 in August.

Stainless_Chart_September-2015_FNLEver since nickel peaked in May of last year, prices have already halved this year to date. In August, prices fell as low as $9,100/metric ton, below the $10,0000/mt psychological support level. Prices now are very close of breaking the record low of $8,850/mt set in 2009. Nickel would be the first base metal to do that.

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Just about a year ago, nickel miners were rubbing their hands in glee, expecting that the Indonesian export ban would put the market in deficit. However, Philippine suppliers have taken up the shortfall. This made nickel prices fall more sharply than other metals this year, as prices were inflated after expectations of a shortfall couldn’t be met.

China Still Overproducing

As my colleague Stuart Burns pointed out recently: The pressure is on Chinese stainless producers to curb production and, although recent purchasing managers index data is encouraging for the US and Europe, growth there is unlikely to exceed the drop in Chinese demand.

With large inventory of nickel ore, of refined metal on exchanges and adequate supply of ferro-nickel, there doesn’t appear to be a strong argument for nickel prices to rise anytime soon.

Prices Are Just Information

Pundits have been suggesting that prices will rise since current prices are below the cost of production. And yes, we agree with them. The cure for low prices is always lower prices. Long-term, this causes the supply business to be less attractive, changing the supply & demand equation.

However, when will prices start reacting? That’s something that we can’t predict at this point. The truth is that investors are fearing a slowdown in China and while nickel is in the same elevator with the rest of base metals, it’s hard to tell on which floor they will get off.

In this extremely volatile market, the best thing buyers can do is to forget about predictions: Have a strategy and react on new market signals.

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The monthly Stainless MMI® registered a value of 64 in August, a decrease of 5.9% from 68 in July and another all-time low in this month where all but one index we track fell to, what we hope, is a new bottom.

Stainless_Chart_August-2015_FNL

Ever since nickel broke a key support level back in March prices have done nothing but free fall, putting nickel at its lowest level since 2009.

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Not only nickel but aluminum, copper and tin have also fallen to levels not since 2009. No one can deny the strong relationship among industrial metal prices.

What a Difference a Year Makes

Just about a year ago, nickel miners were rubbing their hands in glee, expecting that the Indonesian export ban would put the market in deficit. However, Philippine suppliers have taken up the shortfall. Moreover, a strong dollar, record nickel stockpiles and weaker than expected demand from China helped in the decline.

The slump in prices now has nickel miners rethinking output. Australian miner Mincor Resources said in July that it will reduce production by 56% during the second half, as its operations can’t be sustained at current price levels.

Compare Prices With the July MMI Report

Poseidon Nickel, another Australian miner also gave in after saying that its Lake Johnson mine would be put into care and maintenance.

Many are arguing that prices will rise since they are below producers’ costs, however, we have previously pointed out that production costs do not determine prices, investors do.

What This Means for Stainless Steel Buyers

We recommend our readers be careful when fishing for a price bottom based on production costs. With commodity prices falling across the board, and weak demand from key consumer China, we might see a few more closures before the upside comes.

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The Stainless MMI® collects and weights 14 global stainless steel and raw material price points to provide a unique view into stainless steel price trends over a 30-day period. For more information on the Stainless MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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Nickel on the London Metal Exchange fell to a fresh low this week, trading as low as $10,440 per metric ton on Tuesday.

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The metal is experiencing huge sell-offs as the Chinese stock market plunges. We can’t really put all the blame on nickel since this is not the only metal falling. Weakness in China and a strong dollar keep punishing commodities and, even more stridently, industrial metals.

Stainless_Chart_July-2015_FNL

The monthly Stainless MMI® registered a value of 68 in July, a decrease of 6.8% from 73 in June.

Bearish Fundamentals, Too

Nickel’s supply and demand fundamentals, however, agree with the bearish picture the market is painting. We see a couple of factors weighing on prices:

  • First, the Indonesian government banned unprocessed mineral exports in January. The ban on unprocessed nickel and aluminum exports still remains in place. However, after the country already relaxed restrictions on exports of copper, the Indonesian government is considering a relaxation of export restrictions on aluminum and it’s possible that nickel will be the next unprocessed ore to have its ban lifted.
  • Second, most analysts were expecting that LME stockpiles would level off. However, nickel stockpiles surged in June, adding to concerns that production is outstripping consumption. Although we’ve pointed out before that there is not always a good correlation between stockpiles and metal prices, many people might be pointing out that the underlying demand isn’t that strong.

What This Means For Metal Buyers

As nickel free-falls, prices are approaching the record low levels of 2009. Nickel could be the first base metal hit that floor. Nickel would have to fall another 17%, but with the pace we are seeing prices falling, it wouldn’t be a surprise to see this happen at some point…

* Get the complete prices every day on the MetalMiner IndX℠

The Stainless MMI® collects and weights 14 global stainless steel and raw material price points to provide a unique view into stainless steel price trends over a 30-day period. For more information on the Stainless MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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The monthly Stainless MMI® registered a value of 73 in June, a decrease of 3.9% from 76 in May.

Stainless_Chart_June-2015_FNL

After a small price increase in April, nickel prices fell again in May. Prices are now trading near their lowest levels in six years. Meanwhile, nickel inventories jumped to a fresh highs, accentuating an overhead of supply and cutting expectations of the bulls that expected a deficit to develop.

Demand Cannot Outstrip Supply

Although stainless demand is expected to grow moderately, service centers have plenty of inventory and that is putting pressure on US mills. Moreover, a stronger dollar last month sent most base metal prices down, including nickel.

Aluminum is one metal showing similar behavior. The demand outlook for both metals was quite optimistic. That brought bulls in to support prices from falling. However, the bearish commodity market (there’s a serious lack of demand) and a strong dollar made these two metals give up all their gains from 2014.

What This Means For Metal Buyers

It’s not that stainless demand is weak, it’s just far from being strong enough to overcome the excess of inventory, increased imports and a strong dollar. While the macro picture stays the same, expect prices to remain range-bound at best.

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Stainless steel and nickel rebounded impressively this month, gaining 5.6% from a low of 72 in April. The monthly stainless MMI® registered a value of 76.

3-month London Metal Exchange nickel rose in April, after falling as low as $12,200 per metric ton, the lowest levels since 2009. Technically, this recent price increase is nothing to be concerned about, at least yet.

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Nickel prices fell as much as 40% from October to April so a 5.6% increase this month seems just like a normal price reaction after a significant fall.

For the first time in nine months a weaker dollar and more stable oil prices are giving some short-term momentum to commodity prices. Nickel certainly benefited from this in April, as did most of the base metals we track. If weakness in the dollar continues, nickel prices could keep rising in this second quarter but momentum will likely vanish before prices are able to make a significant move.

Demand Not Helping Prices

End market demand seems to be robust in markets such automotive and residential appliance, although it’s still weak in the energy market due to low oil prices. However, a moderate growth in stainless steel demand won’t likely help move prices up too much this year. Service centers have excess inventory and that is putting pressure on US mills. This glut of inventory is a big contrast from last year when lead times went above the standard, causing service centers to look for alternative sources.

As my colleague Katie Benchina Olsen pointed out recently, until service centers reduce their inventory backlogs and nickel prices start to improve, service centers will not buy, regardless of price. Service centers need to focus on getting their inventories in check before they resume anything resembling regular buying patterns. ​​However, the mills are under pressure to book capacity and that could put more pressure on prices if they are not able to think longer-term.

What This Means For Metal Buyers

Nickel prices went up this month but that should not panic nickel buyers. Prices could keep rising in the second quarter as the dollar weakens but the outlook for the balance of the year remains bearish.

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Nickel has fallen to a 6-year low on the London Metal Exchange, as prices have broken a key support level.
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The monthly Stainless MMI® registered a value of 72 in April, a decrease of 7.7% from 78 in March. Stainless steel prices are falling along with their key alloying metal.

Those traders that supported the metal price from declining further have now changed their minds. This simply means that the market sentiment has changed. Selling pressure has overcome buying power and, without making any predictions, nickel is now more vulnerable to further declines.

Two factors helped to change the market sentiment:

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