Our Stainless MMI rose 6% to 54 points in May. Similar to copper prices, nickel prices are showing a recovery this year, but the gains have been small compared to other industrial metals.
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Nickel’s price fall last year caused some miners to curb production. Some of these production cuts went into effect in 2015, helping prices to find a floor this year. However, the cuts haven’t been enough for the markets to really make a bull run. Global nickel supply is still running strong as the supply side has proved quite inelastic to low prices with most producers hanging on while they hope Chinese pig-iron producers will close down first.
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. 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. However, we have yet to see anything close to that since, so far this year, there haven’t been any supply cut announcements. The latest significant production cut was announced late in 2015.
The Other Side of the Equation
For nickel markets, it looks like the supply side of the equation is not going to trigger a significant price rally, at least not until we see new major supply cut announcements. That leaves us looking at the demand side to see what could trigger a price rally.
One factor that could boost demand for the metal is the ongoing weakness of the U.S. dollar. We recently saw the U.S. dollar index falling to its lowest levels in 15 months. Further depreciation of the dollar against other currencies would increase demand for all dollar-denominated commodities, including nickel, from holders of international currencies.
The stimulus that China is providing its domestic industries could boost demand for stainless steel. Similar to copper, China’s net imports of refined nickel are surging right now, imports jumped to from 106,000 metric tons in the first quarter from 11,600 mt in Q1 last year.
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We also have previously analyzed that other Chinese economic indicators are suggesting that the stimulus program that China launched last year is causing demand for base metals. The question is how sustainable, really, is this uptick in demand?. China really cannot afford another debt-fueled boom such as the one it experienced from 2009-11, nor do they want to encourage producers to rush back into making metal. Under this uncertainty, stainless buyers should remain on alert, especially if we continue to see improvements across commodities markets.
Here in the U.S. market, three domestic flat-rolled stainless increases have been implemented since the beginning of this year. Base prices are rising. Domestic lead times are now close to 12 weeks and many service centers are reporting controlled order entry with domestic mills. The anti-dumping and countervailing actions against Chinese cold-rolled stainless are causing other importers to be cautious in making offers in North America. Supply could be temporarily tight unless ATI or AK Steel start producing more stainless or the non-Chinese imports become more available.
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