This week on the London Metal Exchange, the 3-month LME nickel price fell to its lowest level since 2009. It’s certainly not the first industrial metal to hit a 6-year low in this bearish year for base metals.
There has been a lot of talk recently about nickel’s supply side. Indonesian authorities have not changed their minds about refusing to export raw ore and the ensuing ban on exports of nickel ore to China continues. There is no flow of material between the two countries.
NPI Demand Drops
However, it’s important to remember that China’s nickel pig-iron producers had built up significant quantities of stocks prior to the January 2014 ban, compensating for the supply decrease. At 2 million metric tons, imports of Philippine ore this year are slightly higher than last year but are still nowhere near enough to offset the loss of Indonesian supply.
Chinese demand is weak and global demand, overall, is weak as well. Stainless demand is suffering from the same macroeconomic pressures as other industrial commodities. You don’t need to be an economist to see that. Just by looking at the performance of other base metals, it is clear that a bear looms.
Nickel is falling to new lows in heavy trading volume. Nickel’s LME fall also coincides with the launch, yesterday, of the Shanghai Futures Exchange nickel contract. Some analysts say the new contract prompted a surge in LME volumes.
That suggests that many traders are in agreement with a lower price and that’s a bearish signal, especially when we are seeing the metal break support and hit new lows.
What This Means For Metal Buyers
Nickel is not able to hold above key support levels. After showing some resilience in 2014, nickel is now showing nothing but weakness. A bearish commodity environment, a strong dollar and low oil prices are punishing nickel prices. Nickel might look cheap, but in this environment things can get a lot cheaper. As we always recommend: buy on strength not on weakness.