The monthly Stainless MMI® registered a value of 59 in October, flat from last month.

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Most base metal prices stabilized this month and nickel was exception. The metal is finding support just above its 2008 lows. Nickel is the metal closest to its recession level. This level could act as a psychological support level for traders, helping support prices in the coming months. However, we suspect this won’t be enough to hold prices longer-term if bad news keeps coming out of China.

China is still producing more than it can absorb. Weak Chinese demand and the fear that the worst has yet to come remains the overriding theme for nickel. Price-related closures in the nickel industry have been frequent over the past few months. However, as we’ve been pointing out, it’s hard to determine how many more mine closures we will need to see before prices find that elusive floor.

Stainless_Chart_October-2015_FNLBesides weak demand, investors remain worried about the high level of visible inventories. Not that inventory levels are a good price indicator but, for what it’s worth, inventories today are way higher than what they were when nickel bottomed out after the recession. Today’s LME nickel inventory levels appear closer to 450,000 metric tons, still near their all-time high of last June, while in 2008 nickel stocks fell below 60,000 mt.

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The inventory picture looks similar in the stainless market. Domestic and import mill inventories remain high, with domestic mill lead times remaining short. With inventory well-stocked and the end of the year approaching, service centers will keep trying to reduce inventories, hesitant to order more than what’s absolutely necessary.

What This Means For Metal Buyers

We’ll have to wait and see if prices are able to bounce off their record lows. So far, we only see a lack of upside momentum. Nickel prices might need more than that before making a significant rally.

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Switzerland will investigate precious metals price collusion and Horizonte Metals is the first buyer in Glencore‘s mining assets sell-off.

WEKO Wants Precious Probe

Switzerland’s WEKO, a government watchdog group, said on Monday it had opened an investigation into possible manipulation of the precious metals market by several major banks. Its investigation, the result of a preliminary probe, was looking at possible collusion of bid/ask spreads in precious metals markets by UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui.

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The move comes a month after press reports that the European Union’s competition regulator was investigating anti-competitive behavior in precious metals spot trading, and follows news of a US probe by the Department of Justice and the Commodity Futures Trading Commission earlier this year.

Horizonte Buys Glencore Nickel Mine

Horizonte Minerals said on Monday it has bought Glencore’s Araguaia nickel project in Brazil for $8 million.

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“This is a game-changing transaction for Horizonte. We have been able to negotiate a unique transaction leveraging the current depressed commodity markets,” Horizonte CEO Jeremy Martin said in a statement.

October Metal Price Forecast Preview Webinar

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  • Various macroeconomic factors at play
  • Where we envision prices heading in October and into 2016

We’ll equip you with the tools you’ll need to go to your team with an informed purchasing opinion, whether you source aluminum, copper, tin, nickel, lead, zinc or the various forms of steel. This webinar is specifically tailored for the North American Manufacturer and is not to be missed!

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Get your short- and medium-term outlook for nickel!

While nickel prices started September near 2009 lows, there have been signs of promise for the metal as various global factors, including Indonesia’s decision to continue to ban unprocessed ores, could lead to a price hike as the month draws to a close.

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Nickel producers face a unique dilemma with many reluctant to put their stock on the market due in part to both near-historic low prices and an oversupply in the market. However, the supply is expected to decrease this year and while this is a positive sign, it is offset by an overflow with demand down sharply in Q3. The situation in China has not helped matters either with many steelmakers wary of increasing their consumption.

So what does the future have in store for nickel? That depends on several factors: first, a sustained recovery from China, which would bring back demand in a major way and second, continued ore prohibition from Indonesia, which would suppress supply and enable the little guys to meet the demands from behemoths such as China and Japan.

Never Predict in a Volatile Market

Nickel and other base metals are currently in the throes of a bearish yet volatile market. In situations such as these, it is best to not think about predictions but instead have a well-thought out strategy in place that can move easily based on new market signals.

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:

The Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable conference began today in  in Chicago.

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ISRI Chief Economist and Director of Commodities Joseph Pickard said the stainless steel industry became too reliant on Chinese demand in the last decade and a half.

“It’s a cyclical industry and Chinese demand has cooled,” Pickard said. “China is facing a series of daunting challenges, re-engineering their economy to a market-based one, quelling labor unrest and dealing with an aging population.”

China accounted for half of the world’s stainless production last year, Pickard said, and Chinese production of stainless was just 731,000 metric tons in 2001. Today, it’s 50% of the entire world. London Metal Exchange nickel prices are down around 33% on the year-to-date. According to Maquarie, Chinese production cuts are continuing and European production fell 5% year-on-year.

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Pickard was recenty selected to represent the US scrap industry in the Industry Trade Advisory Committee on Building Materials, Construction, and Non-ferrous Metals for the Dept. of Commerce and US Trade Representative.

Nickel has already halved its year-to-date value after peaking in May 2014.

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This week, prices fell below the $10,000 per metric ton, a physiological resistance level. Prices are now approaching the record low of 2009 when prices hit $8,850/mt. If so, nickel would be the first industrial metal to fall below recession levels.

3M LME Nickel below $10k and approaching record lows

3-month LME Nickel below $10,000 and approaching record lows. Graph: MetalMiner.

The slump in prices made some producers cut output and we’ve heard people talking about a price spike as producers are underwater. But as you are aware, production costs do not determine prices, investors do.

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The bearish momentum in China’s stock market and the commodities markets will keep a lid on nickel prices and, in our view, prices could keep sliding. Why not? They’re already nearing the lows of 2009.


Get your short- and medium-term buying strategy for nickel

On August 12, for the second straight day, China devalued its currency, sending nickel and other base metals in a free-fall. Then, the central bank pushed the value of the currency lower a third time yesterday.

China’s economy is at a standstill and investors are concerned that it could fall further as commodity prices, including nickel, are now in reverse and traders view the devaluation of the yuan as a sign a currency war could follow, further putting the global economy in turmoil.

However, the central bank stated that financial markets should not be affected in the long-term as it doesn’t anticipate a consistent depreciation of the yuan.

Want to know how this will affect future nickel prices? Get your 30-day forecasts for copper and 9 other metal forms in our new Monthly Metal Buying Outlook report.

“Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan,” the central bank stated.

Not everyone is so optimistic, however, as Rajeev De Mello, head of Asian fixed income at Schroders in Singapore, told The Guardian: “While it is too early to say whether this is the beginning of a sustained devaluation of the yuan, other central banks may be forced to follow suit and that may trigger a fresh round of currency weakening around the emerging world.”

Nickel Prices Primed for a Turnaround?

Our own Stuart Burns wrote just the other day that rising nickel inventories in London Metal Exchange warehouses could signal a bearish turn for the future of refined nickel prices.

This is contrary to the established viewpoint that the Indonesian export ban will lead to a shortage of nickel ore for Chinese production and, in turn, lead to rising prices. Burns concluded that as it is, there does not appear to be a case for nickel prices to rise in the near future.

So What Should My Industrial Buying Strategy Be?

You can find a more in-depth nickel price forecast in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Rising London Metal Exchange nickel inventories have been taken as a bearish sign for the future path of refined nickel prices, while appearing to run counter to the long running narrative that says the Indonesian export ban introduced in early 2014 will eventually lead to a shortage of nickel ore for Chinese nickel-pig iron production and, hence, upward pressure on prices.

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From a fundamentals point of view, nickel has been giving confusing messages of late and views vary widely on future price direction.

HSBC: The Biggest Nickel Bull

HSBC, for example, in its most recent Metals & Mining Quarterly Review forecast just last month said there would be a 53,000-metric ton deficit in the nickel market this year and prices would average $15,120 per mt this year. They are currently at $10,800 at the time of this writing. As a consequence of HSBC’s constrained supply side view, they are predicting $21,500 per mt in 2016 and $22,000 per ton in 2017.

Source HSBC

Source HSBC

A large part of the bank’s argument seems to be based on its belief that global stainless steel output will grow at a CAGR of 3.8% during 2014-18, admittedly considerably lower than the 6.5% CAGR during 2010-14, but still a hefty bet on China where concerns are growing about how robustly stainless output can continue to rise. Read more

More anti-dumping duties on Chinese and Taiwanese stainless steel have been upheld, this time in Europe. A major nickel producer is also slashing output.

EU Upholds Stainless Duties

European Union member states have backed the imposition of anti-dumping duties on imports of cold-rolled, flat stainless steel from China and Taiwan, ThomsonReuters reported.

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The EU will charge tariffs of between 24.3% and 25.3% for sheet, coil and strip imports from China and of 6.8% for Taiwanese product, following a complaint lodged in May 2014 by the European steel producers association Eurofer.

Mincor Will Cut Production

Australian nickel miner Mincor Resources said on Wednesday it will reduce production by up to 56% over the six months ending in December due to persistent low nickel prices that have left operating levels unsustainable.

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Under Vladimir Putin, Russia bet its future on its abundant natural resources, believing it was irreplaceable as an energy source to the economies of Western Europe.

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Russia pumped oil and gas, nickel, aluminum and other commodities at the expense of building its manufacturing base. With few exceptions, manufacturing suffered at the alter of a strong ruble and, for a time, was flattered by a strong domestic economy playing catch up after years of Soviet waste. The following graph of real effective exchange rate against exports of non-oil goods shows how the strength of currency correlates with falling exports of manufactured goods.

REER appreciation has adversely affected no-oil imports.

Source: London Telegraph

But now, a combination of falling commodity prices, particularly oil and gas, and western sanctions following Russia’s misadventure in Ukraine in 2014, have left the economy in a state of decline. According to the London Telegraph Russia is running a budget deficit of 3.7% which may not sound like much, but for an economy without developed capital markets it shouldn’t be running a deficit at all according to sources quoted by the paper. Read more