nickel price
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.

Nickel symbol handheld in front of the periodic tableNickel futures traded down Tuesday this week due in part to a burgeoning overseas trend and subdued demand.

The London Metal Exchange was the source of this weakening trend with sluggish demand attributed to alloy makers in the domestic spot market, according to a report from The Economic Times.

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Nickel wasn’t alone in its LME downward trend as most industrial metals retreated on the heels of commentary from the Federal Reserve, which fueled speculation that U.S. borrowing costs will rise in the coming year. Read more

We rarely see such positive growth in metal prices as we did in the August MMI Price Trends Report.

MM-IndX_TRENDS_Chart_August2016_FNL-TOPVALUE100

All the metals we track were up save for Aluminum, which fell only 1.3%, and renewables and rare earths, which held flat. The Stainless Steel MMI increased 9% amid uncertainty about Chinese nickel ore supply after mining crackdowns in top supplier, the Philippines.

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Meanwhile, the most bullish of bull runs continued for our Global Precious MMI which added a 7.2% increase to its jump last month to knock on the door of the top 10% of the IndX. The platinum group metals had strong increases along with gold and silver this month.

Wall Street Bull

“Hey metal buyers, remember me?” Wall Street bull courtesy of iStock.

Palladium, particularly, made higher highs and stumbled to lower lows in classic bull market fashion.

So buy quickly before prices increase more, right? Wrong. Our Raw Steels MMI posted a healthy 4% increase, but it’s still heavily dependent on China’s stimulus programs to keep demand up in the largest global consumer of steel products. If there is a pullback in stimulus, prices could fall dramatically. The same is true for copper.

Unlike diamonds, bullish trends in commodities and industrial metals don’t last forever. Continue to make informed buying decisions in this thriving market — watch China’s stimulus program and the strength of the U.S. dollar post- Brexit — and remember that today’s price strength might be tomorrow’s carpet getting pulled out from under your feet.

Vale SA is looking to sell part of its future iron ore output for Chinese cash today and the Philippines’ nickel mining crackdown has claimed its seventh victim.

Vale Brings in Chinese Investors

Brazil’s Vale SA is considering raising as much as $10 billion from the sale of up to 3% of future iron ore output to undisclosed Chinese companies, two sources with direct knowledge of the matter said.

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Under terms of the deal, Vale, the world’s biggest iron ore producer, would receive streaming financing from the companies.

Philippines’ Crackdown Claims 7th Nickel Miner

The Philippine government has suspended the operations of a seventh nickel miner, Claver Mineral Development Corp., a minister said on Thursday, deepening an environmental crackdown that has caused jitters in global nickel markets.

Free Download: The July 2016 MMI Report

The Philippines is the biggest supplier of nickel ore to top market China and the suspension of some mines and the risk of more closures sent global nickel prices to an 11-month high of $10,900 a metric ton on July 21.

Nickel price investment trading arrow going up rising strong indDespite nickel prices going on a hot streak — having climbed 40% since bottoming out at the beginning of the year — many nickel miners are seeing diminishing returns on their production.

According to a recent report from the Financial Post, Sherritt International Corp., a Canadian nickel miner, announced recently that more than half of global output is losing money with the percentage of underwater production even higher when capital spending and other costs are factored in.

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“This rally in the last few weeks is perhaps more robust than some false starts we’ve had over the last year,” David Pathe, chief executive at Sherritt, told the Financial Post. “But it’s got a ways to go before we think we’re at a long-term nickel price that’s sustainable.”

Prior to the recent surge, nickel prices had been a victim to lagging demand, rising inventories and supply from the Philippines in recent years. The recent increase in nickel prices has been partially attributed to speculation that new environmental regulations from the Philippine government will spur mine closures yet only a few small mines have actually been shut down so far, the Financial Post stated.

Nickel Imports Rise

According to a recent piece from our own Raul de Frutos, nickel, along with zinc, have benefited from higher demand coming from China.

de Frutos stated: “In the case of nickel, the supply shortage comes as the new mining minister in the Philippines, Regina Lopez, said that there would be a ban on fresh mining exploration in the country for a month while all existing mines are being reviewed. At present, the Philippines is the top supplier of nickel ore to China and these new developments have sparked concerns about ore supply to China.”

You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

Nickel and Zinc are two base metals that every commodity investor is talking about right now. Both metals have benefited from a bull narrative of supply shortfall this year.

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On top of that, they both are benefiting from higher demand coming from China which is being reflected in the surge in Chinese imports this year:

Zinc

3M LME Zinc

Three-month London Metal Exchange Zinc price. Source: Fastmarkets.com.

Zinc investors have been drawn in by the narrative of mine closures and a resulting tightening of the supply chain. As zinc prices weakened over the past three years, more than 1.5 million metric tons of mine capacity was either idled or closed permanently.

These closures were further exacerbated when Glencore announced its plans to suspend 500,000 mt of production last October. Although many people called for a tight market in previous years, in 2016 it really seems to be happening while the development of new mines is being restrained by limited capital to invest in new projects.

Other than the supply shortage, we are witnessing strong Chinese demand likely thanks to a boost in infrastructure spending. Net imports of refined zinc more than doubled to 280,800 mt in the first half of 2016, showing strong appetite for the metal. At the same time, China’s own production of refined zinc fell by 1% over the same period.

zinc production - usage

Zinc production – usage in thousands of metric tons. Source: MetalMiner.

Indeed, according to preliminary data recently compiled by the International Lead and Zinc Study Group, zinc is finally in deficit territory for the first time since 2014. The global market for refined zinc metal was in deficit by 64,000 mt from January to May 2016 with total reported inventories falling by 24,000 mt over the same period.

Nickel

3M LME Nickel

Three-month LME Nickel Price. Source: Fastmarkets.com.

In the case of nickel, the supply shortage comes as the new mining minister in the Philippines, Regina Lopez, said that there would be a ban on fresh mining exploration in the country for a month while all existing mines are being reviewed. At present, the Philippines is the top supplier of nickel ore to China and these new developments have sparked concerns about ore supply to China.

Free Download: The July 2016 MMI Report

On top of the supply shortage, refined nickel imports in China have surged by 189% to a record 226,100 mt in the first half of the year.

What This Means For Metal Buyers

When the metal you buy is rising in price while the fundamental picture is suddenly turning bullish, there is no time for second thoughts. Hedge metal needs and protect your budget.

Nickel prices climbed to a six-week high, a nice recovery after May’s price sell-off.

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The metal benefited from a positive swing in investor sentiment toward commodities in June, stemming from a weaker dollar and the ongoing recovery in oil prices. Nickel has climbed steadily after hitting multiyear lows in February, but the move isn’t big enough to impress the market yet.

3M LME Nickel hits 6-week high

Three-month London Metal Exchange nickel hits a six-week high. Source: MetalMiner analysis of FastMarkets.com data.

Chinese Ore Imports Falling

Nickel ore is the essential ingredient for China’s massive nickel pig-iron production sector. Imports for the first four months totaled 4.16 million metric tons, a 38% decline compared to the same period last year. Indonesian imports have been non-existent since the country imposed its exports ban on unprocessed minerals. Although the Philippines has managed to fill part of the gap, it hasn’t been enough. Read more

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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