Week-in-Review: We Knew The Great Nickel Bust Was Coming

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For months now, we here at MetalMiner have, just like the rest of the metals world, been extolling the virtues of investing in nickel, the alloying metal in stainless steel. Since January, nickel was the stand-out performer on the London Metal Exchange as that’s when Indonesia, previously the largest raw nickel ore exporter to China and other industrialized nations, banned shipping out its ore in an attempt to grow the domestic industry.

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Not surprisingly, nickel gained and gained, weathering London Metal Exchange corrections and climbing to heights unseen since the heady days of 2010. All the while, though, MetalMiner Editor-At-Large Stuart Burns was quietly warning that the shortage of nickel pig-iron ore, China’s favorite kind, could be the equivalent of the Fountain of Youth, the Yeti or MC Hammer’s Comeback Tour. A myth.

buffalo-nickel-L1

Brother, can you spare a… actually, these days I’m made of zinc with just a thin covering of nickel.

Well, after flirting with its own ban that scared the bejeezus out of analysts, traders and purchasing managers took a hard look at how much nickel ore the Philippines is producing. Then Australia got into the act. I half expected the neighbors to start mining in the backyard in hopes of getting in on the nickel boom. This is a get-rich scheme completely separate from backyard zinc smelting. Later this week, the bottom dropped out and it became readily apparent that nickel ore is in ample supply, even without Indonesia. After stockpiles reached an LME record, the bottom fell out and nickel entered a bear market.

What happened? How did nickel fly so high only to fall so fast? Who was this pap smear and why’d he want Nordberg dead?

The ore ban was supposed to create a deficit for years. It was simply not what it was cracked up to be. China didn’t help by slacking off its own production amid a falling economy. All of the signs of the great nickel bust were there and, with the exception of Stuart, the tale of ongoing deficit and China building smelters in Indonesia was simply too enticing. Why believe in rising stockpiles in warehouses when there’s a story about factory production in Indonesia to cover? Was it really that surprising that the Chinese would find a new source instead of building a refining industry for Indonesia? The Philippines overperformed, blowing past analysts expectations for higher production.

With a hefty 6-month surplus on hand, nickel’s not likely to recover its losses in Q4. This situation makes nickel just like all our other metals. Tarnished by a strong dollar, down on the LME and in need of a good correction. It was the best of times…

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