Nickel prices climbed to a six-week high, a nice recovery after May’s price sell-off.
The metal benefited from a positive swing in investor sentiment toward commodities in June, stemming from a weaker dollar and the ongoing recovery in oil prices. Nickel has climbed steadily after hitting multiyear lows in February, but the move isn’t big enough to impress the market yet.
Chinese Ore Imports Falling
Nickel ore is the essential ingredient for China’s massive nickel pig-iron production sector. Imports for the first four months totaled 4.16 million metric tons, a 38% decline compared to the same period last year. Indonesian imports have been non-existent since the country imposed its exports ban on unprocessed minerals. Although the Philippines has managed to fill part of the gap, it hasn’t been enough.
The country’s ore producers warned in March that they would cut production this year due to low prices. Adverse weather conditions contributed to lower exports so far this year.
Chinese Primary Nickel Imports Surging
While ore imports are falling, China is importing more primary nickel than ever. In April, China imported 107,161mt of ferro-nickel, the highest level since China first started importing ferro-nickel. The data, however, is distorted since it includes NPI imports in it.
Just in April, Indonesia exported almost 84,000 mt of NPI, accounting for over 78% of China’s April ferro-nickel imports. NPI production in Indonesia is surging, primarily thanks to the expansion of the Tsingshan plant, currently ramping up to 90,000 mt per year. Part of the reason for Indonesia’s ore export ban was to support processing plants at home.
The conclusion is that even though there is less nickel ore available to China, the country is now able to satisfy its needs by importing more primary nickel as more Indonesian NPI and ferro-nickel are finding their way to China even before Indonesia’s downstream stainless steel sector is completely established.
According to the International Nickel Study Group, the nickel market will be in a small deficit of 600 mt this year, for the first time since 2011. That seems encouraging, but the numbers are marginal relative to the size of stocks in the nickel market. Shanghai Futures Exchange stocks have risen to over 90,0000 mt this year from just 3,000 mt this time last year. Meanwhile, LME stocks fell in the second quarter but stand near 400,000 mt. These are high numbers relative to historical levels.
What This Means For Metal Buyers
Nickel prices are on the rise. The fundamental picture is slightly improving but its upward pressure might be offset by downward pressure from the high level of inventory. Like with other base metals, buyers should remain alert as sentiment in commodities markets has improved but we might need to see more supply cuts to see a significant price rally. Prices could fall short near resistance levels at $9,500/mt. A level that acted as a roof twice this year.