nickel

stainless-nickel-L1The losses incurred by nickel mines due to low prices continue to pile up with Canada’s Sherritt International Corp and Japan’s Sumitomo Corp announcing this week more than $1.7 billion in losses from their Ambatovy nickel mine in Madagascar.

The reason? Nickel prices are at 12-year lows and it’s wreaking havoc on operations. With 60,000 metric tons of nickel mined a year at Ambatovy, the continued slump in commodities has taken a significant toll on miners and traders alike, forcing asset sales, losses and write downs, according to a report from The Globe and Mail.

“There is a possibility that we may post impairment losses in additional projects,” Sumitomo stated in a press release.

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Slumping demand in stainless steel is the main source of nickel’s surplus. The glut in supply is putting downward pressure on prices for the metal, which recently dropped to its lowest mark in more than 12 years.

The Madagascar nickel project is one of the world’s largest and has suffered from both the global commodity slump as well as slowing Chinese demand, reports The Wall Street Journal.

“Our earlier outlook was too optimistic,” Hiroyuki Inohara, Sumitomo CFO, told the WSJ.

Demand Slowdown Not Stopping in China

China continues to produce steel in spite of a slowdown in domestic demand, according to our own Stuart Burns. “China’s steel exports rose by almost 20% in 2015 to a record 112.4 million mt. To put that in perspective that is enough to meet demand in Germany and Japan for a year and still leave almost 9 mmt to spare,” he wrote.

However, that amount of exports is not sustainable in the medium term. With global demand stagnant and trade tensions on the rise, exports will have to find a way to decrease this year either on their own or through anti-dumping actions.

How will base metals fare in 2016? You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

 

 

Our Stainless MMI fell to 52 from 54 in January. Nickel is hovering near 12-year lows. Not even a weaker dollar helped lift prices over the last month.

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The US flat-rolled stainless mill base price increases announced last month will not even raise the net price due to falling values.

Stainless_Chart_January-2016_FNL

With prices at these low levels, it’s estimated that 60-70% of the industry is underwater. Some might wonder, “why don’t prices go up, then?”

As we’ve said before, markets don’t care about how profitable producers are. They look at the supply/demand equation and while companies don’t cut production: falling demand + constant/rising supply = falling prices.

Markets Move Prices

The main problem is that producers aren’t throwing in the towel, hoping for demand to come back and lift prices. The only focus of nickel producers at this moment is to reduce production costs to be ready when prices come back up. The problem is that China is not recovering from its economic flu, and someone has to give in if the producers want to see higher prices.

A clear example is the construction of the Nova nickel mine in Australia. Starting production in December 2016, the mine is expected to deliver about 26,000 metric tons of nickel annually for the next 10 years and operate on a low-cost basis of around $3,500/mt, less than half the current price.

Vale Indonesia is also continuing to reduce output costs to stay competitive. Its production was up 15% in the third quarter compared to the same period a year earlier. In Indonesia, six smelters are expected to start operations this year with a total capacity of 50,000 mt of pure nickel (or 500,000 mt of nickel pig iron).

Tsingshan Holding Group is expanding its processing plants in central Sulawesi, with capacity of 90,000 mt of pure nickel. That alone is more than the 80,000 mt that eight Chinese nickel producers recently announced they were collectively cutting.

What This Means For Metal Buyers

Nickel prices are at low levels, but while production cuts aren’t materializing, it’s hard to imagine a meaningful price increase.

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stainless-nickel-L1Nickel miners are under mounting pressure to reduce production and even shut down operations in the face of dropping nickel prices, but with one caveat, according to an Australia’s Independence Group:

“We are at price levels that are unsustainable in the long term,” Peter Bradford, managing director of Independence, told Reuters. “The capacity that will be shutting down will be the higher-cost nickel mine production.”

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Independence is expanding its nickel mining footprint despite its peers cutting back production with prices falling and about half the global sector losing money, Independence told the news source.

“We don’t understand it, we won’t wait for the markets to turn to justify operations,” Ivan Glasenberg, chief executive of mining and trading group Glencore told an investment briefing last week.

Independence is building the Nova nickel mine in Australia with plans to begin production in December 2016, according to the news source.

“Nova is an extremely robust project that will be able to weather the commodity price cycle,” Bradford added.

What Does 2016 Have in Store For Nickel, Other Metals?

A significant contributing factor to the bearish metals market in recent months has been the economic slowdown in China. The Far East nation makes up half of the world’s commodities demand. Is there a recovery in sight for 2016?

Says our own Raul de Frutos: “Contrary to what others are saying, we suspect that the slump in China’s stock market could continue, resulting in more fears and more sell-offs in commodities/metals markets.”

How will base metals fare for the remainder of 2015 and into 2016? You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

 

 

 

After 2 months holding steady at 59, our Stainless MMI sank in December to 54, 8.5% down from last month.

Three-month nickel on the London Metal Exchange fell in November to a new 12-year low, falling as low as $8,145 per metric ton. The metal is the biggest loser on the LME this year, losing around 45% of its value on the year to date.

Stainless_Chart_December-2015_FNL

This brings up the question: is there still downside potential?

Just a year ago, when nickel was trading near $15,000/mt most analysts only saw upside risk and little downside potential. Since prices were trading at a 50% discount from nickel’s peak in 2011, and half the producers were already underwater, how much lower could prices go?

They Can Go Lower

Well, so far, from $15,000 to $8,500 that’s a 44% decline, there you have your “downside potential.” Why do people make the mistake of buying low only to see prices go even lower? Behavioral finance calls this “anchoring,” the human tendency to attach or “anchor” our thoughts to a reference point even when it makes no logical sense.

When buyers see that nickel prices have fallen significantly and quickly, they anchor the new low price onto a recent price high that nickel previously achieved. This creates the idea that the new price provides an opportunity to buy nickel at a discount.

Most of the time, how high the metal was trading before is irrelevant and we can’t just say that something is undervalued when there has been a change in the metal’s underlying fundamentals. The poor outlook for struggling steel and stainless sectors, as well as China’s slowing growth, kept a lid on a nickel price increase this year. Finally, a surging dollar in November triggered a new sell-off, driving the metal to record lows.

Low prices keep putting more and more pressure on smelters. Toward the end of the month, nickel smelters in China announced plans to cut output next year by at least 20%. The smelters didn’t state how much nickel that 20% actually is, but analysts estimate it to be near 120,000 metric tons. Eight producers already agreed to cut output in December by 15,000 mt. It’s estimated that 70% of global production is now loss-making production.

Will the new production cuts lead to sustainable higher prices? We’ll have to wait and see how the market reacts. So far, price rallies have been short-lived and given the poor commodity macro outlook, we can’t mark a limit to the downside.

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Three-month Nickel on the London Metal Exchange fell on Monday to a new 12-year low, falling as low as $8,175 per metric ton. The metal is the biggest loser on the LME this year, losing around 45% of its value on the year-to-date.

3M LME Nickel hits 12-year low

Three-month London Metal Exchange nickel has now hit a 12-year low. Source: FastMarkets.com.

This year, we heard many times that since more than 50% of producers were underwater, prices were due for a recovery. But once again, the market has proven that production costs don’t determine the price of a metal, it’s what people are willing to pay that determines it.

Why is Nickel Still Falling?

Nickel has fallen on a poor outlook for its struggling steel sector as well as a strong dollar and China’s slowing growth. These two have also driven the entire metals complex down this year.

Nickel is the first metal falling below its 2009 low. With this, we believe the chances of other metals suffering the same fate have increased. Some base metals like copper are still trading well above their recession’s lows. Aluminum however, could be next.

stainless-nickel-L1It’s been a rough month for nickel prices following a brief glimmer-of-hope rally.

The base metal has slumped over the past four weeks with the nickel futures contract traded on the Multi Commodity Exchange (MCX) down more than 10% from its peak in October, according to a report from The Hindu Business Line. Additionally, global nickel spot prices have declined over the same time span, bringing domestic futures contracts down with them.

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We must look east for a cause of this decline in nickel over the past year. Weak demand from major consumer China continues to be a major contributing factor to nickel’s struggles. According to the news source, industrial production, trade data and inflation have all been on a downward swing, bringing nickel down as well.

With both the short- and medium-term outlooks of nickel grim, it’s difficult to predict a strong rally at this point.

Metals Round-Up

Taking a closer look at the other base metals we cover, zinc and lead recently showed some promising price gains, but our own Raul de Frutos threw cold water on that development. As it stands, all industrial metals are reaching new lows with commodities falling across the board with no end in sight for these price collapses.

Any rally should be perceived to be short-lived with a sharp decline pending. “Metal buyers may want to think twice before committing to large volumes in this kind of market,” de Frutos cautioned.

How will base metals fare for the remainder of 2015 and into 2016? You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

 

Our Stainless MMI held steady at 59 for the second consecutive month.

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Nickel prices are hovering near the lows of 2009. That level is giving support to prices as traders remain hesitant on whether nickel prices can go below recession levels. While other base metals are still trading comfortably above recession lows, nickel could be the first industrial metal hitting that psychological level.

Stainless_Chart_November-2015_FNLAnother factor supporting prices this month is the speculation that Glencore Plc, the world’s fifth-largest producer of nickel, could cut nickel production following cuts to its copper and zinc output to reduce its heavy debt levels. Moreover, other industry shutdowns could follow given that 60% of the world’s nickel is estimated to be non-profitable at current price levels.

Can Prices Go Up?

Some analysts argue that Philippine ore won’t be sufficient to cover nickel pig-iron (NPI) producers’ capacity in China, tightening the nickel market. However, Indonesia is already working on producing more NPI, as the country is pushing to win more profit from its mineral sources. Chinese producer Tsingshan Group is set to triple its capacity to produce NPI in Indonesia as soon as May, having an installed capacity of 900,000 metric tons of NPI.

Even though nickel’s supply-demand dynamics may actually be tightening, the market is facing other problems:

High Stock Prices

A period of super-fast production growth has left record high inventories. Although LME stocks declined in October, they are still above 400,000 Tons, almost 5 times higher than in 2011. Such a huge overhang of metal is pressuring prices, removing any hopes of market deficit.

Demand Woes

The slowdown in Chinese demand is keeping a lid on any price increase. Moreover, investors fear that the worse is yet to come. So far, demand woes are trampling supply woes, underscoring that significant price increases won’t likely happen until demand fears vanish.

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Finally, rumors of an increase in US interest rates from the Federal Reserve are pushing the dollar higher. The dollar index is surging as foreign currencies tumble. This is another, and not less important, factor that will continue pressuring nickel prices.

What This Means For Metal Buyers

There is no point in making predictions. After this pause, nickel prices could go both ways but we wouldn’t discard the possibility of nickel falling below the lows of 2009. Buying only small quantities remains the dominant purchasing strategy but buyers should watch nickel’s support and resistance levels to be ready to change their strategy.

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While many nickel producers were anticipating the Indonesian export ban would support price increases2016-annual-buyers-guide this year, the reality was much different. Philippine suppliers’ alternative supply led to nickel prices dropping more sharply than other metals this year.

We’ve identified the main price drivers for nickel next year as:

1. China GDP & PMI Data

2. Dollar to Euro exchange rate

3. Philippine exports

For a long-term industrial buying strategy for nickel, complete with specific support and resistance levels, download your complimentary copy of our 2016 Annual Metals Outlook report!

This report also includes commodities markets and industrial metals market analysis, in addition to key price drivers and commentary on aluminum, nickel, lead, zinc, tin and various forms of steel, in addition to copper.

We wrote last week about the selective benefit of lower power costs to certain metals, notably aluminum and zinc spring to mind due to the large percentage of the production cost that is made up of power in the refining process.

Free Sample Report: Our Annual Metal Buying Outlook

Another metal that should be benefiting hugely at present is ferrochrome, but, unfortunately for producers, lower power costs are not a universal phenomena and major producers such as South Africa and China are still facing either restricted power supply or higher electricity costs.

Melt Shop Production Down

Meanwhile, the International Stainless Forum released figures recently for the first half of 2015 showing that at 21.1 million metric tons of stainless melt shop production global output fell 0.7% from a year earlier mainly due to a drop in Europe, Africa and all of Asia except China. Read more

philippines-26794_1280

A Philippine nickel miner to offer IPO despite falling prices.

Nickel prices continue to drop, due mostly in part to weak demand from top consumer China, but that isn’t stopping one Philippine nickel miner from pursuing an initial public offering.

TVI Resource Development (Phils) Inc plans an IPO to raise as much as $22 million to fund a domestic gold and silver mining pursuit, according to a recent report from Reuters.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Come Dec. 18, the Philippine miner, which Canadian miner TVI Pacific Inc holds a 31% equity interest in, will seek a listing on the Philippine Stock Exchange. The timing here is peculiar as Philippine nickel miner shares have suffered this year following an exemplary performance in 2014. Fellow miner Global Ferronickel Holdings Inc has held off on its IPO due to its stock price falling nearly 60% this year on nickel’s struggles.

That’s not stopping TVI Resource Development, however. The plan is to sell up to 272.02 million shares for the IPO, leading to a potential $22 million in earnings with a secondary offering potentially leading to $11 million in earnings, Reuters reported.

Will Nickel go the Way of Zinc and Lead?

A bearish market for base metals has been the story for the latter part of 2015. Nickel has notably suffered, as have zinc and lead, but the story for the latter two has changed in recent days. Zinc and lead, which are mined together, rose sharply last week on the heels of Glencore‘s announcement it will cut its annual zinc production by one third.

How will nickel fare for the remainder of 2015 and into 2016? You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds: