Our Stainless MMI rose to 55 points in July thanks to a recovery in nickel prices. Nickel finally climbed to five-digit territory in July, trading near $10,000 per metric ton on the London Metal Exchange, its highest level in eight months.
A factor supporting nickel prices this year is expectations of lower nickel pig-iron ore exports from the Philippines. Ore producers in the Philippines warned earlier this year that they would cut production due to low prices. So far, Chinese imports of Philippine ore fell by 27% in the first five months of the year.
But price momentum picked up last month following recent news that the Philippine government would review all mining operations in the country. The new President-elect, Rodrigo Duterte, ran on an anti-mining platform and could impose an Indonesian-style raw ore ban, which could potentially disrupt supplies for Chinese buyers.
New Philippine Government
In addition, the new mining minister, Regina Lopez — a committed environmentalist — provided the latest trigger for a rally after saying that there would be a ban on fresh mining exploration in the country for a month while all existing mines are being reviewed.
The expectation is that mines could potentially have their licenses revoked. At the beginning of July, the Philippines already ordered the suspension of operations at two nickel ore mines for environmental violations and the government halted the issuance of exploration permits as a nationwide crackdown led by the mining minister begins.
Nickel’s Bullish Backers
This bullish price action also follows a broad recovery in the whole metal complex this year, which gives more credibility to nickel’s bulls. Our historical analysis shows that a metal has far greater upside potential when the overall commodities market is in bullish mode, while its chances of going down increase in a falling commodities market. While we continue to see bullish sentiment in commodity markets, investors will continue to react in a bullish manner on news like potential supply cuts in the Philippines.
On the other hand, not everything is bullish about nickel. Most analysts call for a deficit this year due to stainless mills having to rely more on refined nickel. This deficit would follow a five-year period of surplus but estimates are for a deficit of less than 100,000 mt this year. That is not a big number considering that LME and Shanghai Futures Exchange inventories currently account for around 500,000 mt combined, at least five times more than the expected deficit.