Nickel price slow to follow the rest of the metals complex

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leszekglasner/Adobe Stock

As much of the rest of the base metals were lifted this week, nickel remained subdued.

This comes despite an announcement by the Indonesian government that it would relax exports of many minerals but keep in place a ban on nickel ores.

According to Reuters, the Indonesian nickel miners’ association (APNI) proposed in April that the country should allow exports of nickel ore to cushion the impact on processed nickel exports by global measures to control the coronavirus outbreak. However, the Ministry for Maritime Affairs and Investment rejected the proposal.

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Nickel pretty much failed to move on the news as investors try to puzzle out which dynamic will dominate: supply restrictions due to actions taken to counter the spread of the pandemic (such as mine closures) or demand destruction due to the drop in manufacturing activity and/or consumer demand.

An optimistic article in Forbes queries why there has been a flurry of takeover activity in the mining industry. The activity includes New Century Zinc’s proposed acquisition of the lossmaking Goro project on the island of New Caledonia from Brazil’s Vale, a resource Vale has struggled with for years, and BHP’s decision to hang on to its interest in nickel after several years of trying to sell off its Australian assets.

Forbes sees this as evidence that miners know something the rest of the market doesn’t: that demand will be constrained and such assets will increase in value.

Forbes also points to an unusual buildup in off-market nickel inventory in China, suggesting it is investor activity similar to that behind the price spike last October as investors put a squeeze on the market in China. The article sees a perception that electric vehicle (EV) demand is going to ramp up amid post-pandemic stimulus and rival stainless demand, but few analysts see such a trend in the short term.

Years down the line, maybe, but the post-pandemic recovery in consumer demand across all sectors — never mind challenging products like EVs — is going to take two or three years, by most estimates (too far out to have a meaningful impact on demand now or entice speculators to pile into the market).

Although nickel has recovered from a four-year low of $10,865 per ton in March to the mid-$12,000s this month, it remains off its highs. Furthermore, nickel has failed to keep up with other base metals, like supply-constrained copper or aluminum (which has an abundant surplus), despite numerous nickel mines being closed, temporarily shuttered or disrupted by the pandemic.

Analysts’ supply estimates have been revised down slightly but at 60,000 tons still represent some 6% of global supply.

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There remains the chance physical supply in China could be restricted. SHFE inventory has fallen to just 27,000 tons. Meanwhile, the LME has some 230,000 tons of stock, a position that has barely moved since the start of the year.

With the Philippines likely to increase output over the coming months, the outlook for the year-end is one of lackluster support for price rises.

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