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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:


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.


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.

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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.

Allegheny Technologies, Inc. reported sales were up 7% for the second quarter over the year before, increasing to $811 million, with the company reporting an overall net loss largely due to its recent work stoppage.

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ATI CEO, President and Chairman Richard Harshman described reason for cautious optimism to an uptick in orders in the aerospace market — both in engine components and airframes — and lowered capital expenditures in the near future ATI continues to ramp up production at its $1.2 billion Brackenridge, Pa., flat-rolled stainless production facility.

Aerospace Growth

“Commercial aerospace market sales increased another 3% compared to the first quarter of 2016,” Harshman said. “Sales to the aerospace and defense market continued to drive ATI’s results, representing over 50% of total 206 sales. Our aerospace market is being driven, in large part, by the growth of ATI’s next generation mill products, forgings and castings.”

Harshman and other ATI executives described the nickel and titanium alloys — and powders that ATI sells for additive manufacturing — it provides to the defense and aerospace markets as the future of the company. Harshman also said the business momentum ATI is experiencing “certainly the best it’s been in quite a while.”

Flat-Rolled Products

While flat-rolled stainless products are clearly not ATI’s future, ATI  officials said the flat-rolled products division improved financially in Q2. According to the earnings report, officials expect the division to be “modestly profitable” in the fourth quarter. This opened up the possibility of ATI considering reopening its Midland, Pa., production facility. ATI officials had previously said the plant won’t return to production until the flat-rolled market improves.

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“In our FRP segment, our second quarter results demonstrate that we are making progress in our journey toward a consistently profitable business, during a period of continuing low raw material prices, global stainless steel sheet and strip overcapacity, and uncertain end market demand,” Harshman said.