Sorry, Nickel Miners – Here’s Why Prices Are Near 2009 Lows

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The monthly Stainless MMI® registered a value of 59 in September, a decrease of 7.8% from 64 in August.

Stainless_Chart_September-2015_FNLEver since nickel peaked in May of last year, prices have already halved this year to date. In August, prices fell as low as $9,100/metric ton, below the $10,0000/mt psychological support level. Prices now are very close of breaking the record low of $8,850/mt set in 2009. Nickel would be the first base metal to do that.

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Just about a year ago, nickel miners were rubbing their hands in glee, expecting that the Indonesian export ban would put the market in deficit. However, Philippine suppliers have taken up the shortfall. This made nickel prices fall more sharply than other metals this year, as prices were inflated after expectations of a shortfall couldn’t be met.

China Still Overproducing

As my colleague Stuart Burns pointed out recently: The pressure is on Chinese stainless producers to curb production and, although recent purchasing managers index data is encouraging for the US and Europe, growth there is unlikely to exceed the drop in Chinese demand.

With large inventory of nickel ore, of refined metal on exchanges and adequate supply of ferro-nickel, there doesn’t appear to be a strong argument for nickel prices to rise anytime soon.

Prices Are Just Information

Pundits have been suggesting that prices will rise since current prices are below the cost of production. And yes, we agree with them. The cure for low prices is always lower prices. Long-term, this causes the supply business to be less attractive, changing the supply & demand equation.

However, when will prices start reacting? That’s something that we can’t predict at this point. The truth is that investors are fearing a slowdown in China and while nickel is in the same elevator with the rest of base metals, it’s hard to tell on which floor they will get off.

In this extremely volatile market, the best thing buyers can do is to forget about predictions: Have a strategy and react on new market signals.

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