LME nickel

Aluminum prices declined overall in May. However, near the end of the month, they appeared to hit bottom and began to trade sideways. Conflicting macroeconomic and geopolitical factors continue to pressure markets, resulting in unclear direction and price trends.
Overall, the Aluminum Monthly Metals Index (MMI) dropped by 6.21% month over month. 

Shanghai Lockdowns Return, Compounding Uncertainty

Shanghai’s reopening proved short-lived as the city stumbled back into lockdown this week. Following a surge in COVID cases, restrictions and mass testing are returning to most areas of the city. Shanghai first went into strict lockdown in late March to quell a major outbreak. Currently, officials intend to release areas that test negative from lockdown. Those that test positive will remain quarantined.

China remains unwavering in its COVID-zero commitment. The impact of this most recent setback remains unknown. It will likely depend on how long and how expansive the lockdowns become.

As cases rebounded almost immediately after Shanghai began reopening, the risk for subsequent lockdowns there and in other cities remains high.

China’s COVID Policies Still Squeezing Aluminum Prices

As long as Chinese demand remains muted, we can expect aluminum prices and market movements to be affected. During the initial stretch of Shanghai’s lockdown,  manufacturing activity plummeted. This caused China’s demand for aluminum to plummet too.

According to the latest numbers, imports of unwrought aluminum and aluminum products fell 11.1% from March to April. They also dropped 37.7% year over year. Meanwhile, output appeared largely unaffected. In fact, the average daily and total monthly production of primary aluminum hit record-highs in April, aided by the relaxation of power curbs.

China’s boost allowed global aluminum production to hold firm year over year during the month. It was a surprising result given the tightness brought on by the Russian invasion of Ukraine. However, as supply outpaced demand in China, bearish sentiment climbed, and global aluminum prices slumped.

With Shanghai’s restrictions returning, markets will likely begin to price delays into China’s overall recovery.

With primary LME ingot prices falling, buyers should carefully review best practice sourcing strategies!

LME Inventories Fall While WTI Crude Climbs

As Chinese demand continues to experience holdups (however temporary), falling LME warehouse inventories and soaring energy prices add competing pressure to the upside for aluminum prices.

For example, inventories saw an 18.5% month-over-month drop at the end of May. On top of that, average inventory levels during the first five months of 2022 sit 55.34% beneath where they were in 2021. Of course, stock levels do not necessarily translate to a movement in prices. That said, consistent declines on top of falling European production levels may very well add friction to any fall in aluminum prices.

Energy prices also continue to climb. Indeed, WTI crude oil prices closed May more than 71% above the year prior. During the early days of June, prices increased beyond the $120/barrel mark, and they remain unlikely to subside in the near term.

In its most recent (and punitive) round of sanctions, the EU agreed to ban as much as 90% of Russian crude oil imports by the end of 2022.

Meanwhile, according to European Commissioner Valdis Dombrovskis, China continues to purchase Russian oil at a 35% discount. India, likewise, has stopped short of cutting off Russian energy supplies.

Nonetheless, the EU’s recent decision will leave a growing number of countries vying for energy produced elsewhere. As a result, aluminum production and input costs will continue to see pressure.

CME Aluminum Futures Contract Builds Momentum

 The LME nickel contract experienced the most direct and substantial fallout from the historic March nickel crisis. However, the reputational damage to the exchange has begun to permeate through to other metals.

The average daily volume for Aluminum futures on the Chicago Mercantile Exchange hit an all-time high in May with a 138% year-over-year jump. Open interest likewise increased 158% during that same period. Meanwhile, on the LME, open interest fell over 14% from March 8 to the end of May.

Thus far, aluminum has not yet faced the same loss of liquidity as nickel. There have also been few issues with volatility or price discovery. Nonetheless, this could indicate the beginning of a gradual shift between the two exchanges as a result of the crisis.

Since March, the CME Group has increasingly looked to capture disillusioned traders from the LME. Momentum is building in aluminum futures. That’s why the exchange also launched aluminum options on May 23. Despite these efforts, the LME remains the leading global exchange for industrial metals by a wide margin.

The MetalMiner Insights platform includes global aluminum prices, premiums, forecasts, and specific monthly busying strategies. Request a 30-minute demo of the MetalMiner Insights platform now.

Actual Aluminum Prices and Trends

  • The LME three-month aluminum price fell by 6.37% month-over-month to $2,850 per metric ton as of June 1.
  • Chinese primary cash aluminum decreased by 1.09% to $3,101 per metric ton. Chinese aluminum scrap rose 4.63% to $2,338 per metric ton. Chinese aluminum billet fell by 9.38% to $2,998 per metric ton.
  • Meanwhile, European 1050 aluminum sheet dropped by 3.82% to $4,302 per metric ton.
  • Indian primary cash fell by 10.36% to $3.03 per kilogram.

 

Nickel prices appeared to hit a bottom in mid-May, but the trend remains down. Moreover, recent price action showed few signs of any bullish structures on a weekly scale.

All in all, the Stainless Monthly Metals Index (MMI) dropped 9.4% from May to June.

LME Faces Nearly $500 Million in Lawsuits

The nickel crisis returned to the headlines earlier this week. Two financial groups sued the LME over its decision to cancel trades following the March 8 nickel squeeze. Trading firm Jane Street Group LLC and hedge-fund manager Elliot Management Corp. filed a respective $15.3 and $456 million dollar lawsuits against the exchange over its handling of the crisis.

The owner of the LME, Hong Kong Exchanges & Clearing Ltd. acknowledged the suits in a statement. It read, “the LME management is of the view that the claim is without merit and the LME will contest it vigorously.” Jane Street, however, characterized the LME’s decision as “illegal” and “arbitrary.” They went on to say that it “severely undermines the integrity of the markets and sets a dangerous precedent that calls future contracts into question.”

The lawsuits follow an ongoing review of the LME’s actions by the LME’s primary regulators, the Financial Conduct Authority and the Bank of England. After this was announced in early April, these reviews are compounded by the LME’s own independent probe.

Nickel Prices: A Tale of Two Exchanges

Nickle Prices

Nickle Price Squeeze

While the lawsuits once again brought attention to the nickel price crisis, the actual fallout remains ongoing. Some feel a departure of nickel traders from the LME was likely following the chaos and the exchange’s subsequent controversial approach to it. However, the ramifications of the crisis remain apparent across the globe.

Both the LME and SHFE continue to grapple with low liquidity. Trading volumes on the LME plummeted when nickel trading resumed in March. Meanwhile, open interest continues to show steady declines. Though the SHFE did not face the same early March suspension, it saw a sharp decline in trading volumes during that week as open interest collapsed. Both volumes and open interest remain constrained to this day.

While the retreat from the nickel market was a global effort, other metals remained largely unaffected.

Nickle Prices

 

Nornickel Projects Slowed Demand Growth

According to the world’s largest high-grade nickel producer, nickel demand will remain in growth but slow from +17% in 2021 to +11% in 2022. Nornickel also expects global inflation and macroeconomic uncertainty to account for much of the slowdown. The producer’s previous forecasts for a rough 40,000 ton surplus (which is expected to widen to 100,000 tons in 2023) of low-grade nickel remains unchanged.

Nickel, alongside other commodities, faced numerous price pressures throughout the past year. COVID-related lockdowns and restrictions continue to disrupt the supply chain. Combined with tight nickel inventories, this fostered considerable bullish sentiment in 2021. The ongoing Russian invasion of Ukraine, which preceded nickel’s historic short squeeze, also remains a point of concern. This is especially relevant as global inflationary pressures threaten the demand outlook.

Nornickel’s forecast hinges on two factors. First, there’s the extent of China’s economic recovery as it gradually emerges from lockdowns. Second, it’s important to consider the impact of future expected interest rate hikes from the Fed. Indeed, these two forces are likely to influence price directions for commodities as a whole throughout the coming months.

See the impact on stainless steel prices. Check out MetalMiner’s stainless steel should cost models by scheduling a demo of the Insights platform.

Actual Nickel Prices and Metals Trends

  • The Allegheny Ludlum 304 stainless surcharge held at $1.82 per pound as of June 1. Meanwhile, the Allegheny Ludlum 316 surcharge held at $2.45 per pound.
  • Chinese primary nickel decreased by 5.4% to $32,866 per metric ton.
  • LME three-month nickel fell by 11.45% to $28,800 per metric ton.
  • Indian primary nickel increased by 11.4% to $29.46 per kilogram.

The term battery metals typically refers to lithium, nickel, and cobalt. The name stems from the fact that the three metals are frequently used in the production of all types of modern batteries. Since 2021, these metals have enjoyed a rather lengthy bull run. This has proved profitable for investors and provided some much-needed predictability for traders.

However, if you ask the experts at Goldman Sachs, the battery metals party is “officially over.” But is this really true? If so, what does it mean for the rest of 2022?

Are Battery Metals Really Done For?

Cobalt saw its last major surge back in March of 2018, when it reached an all-time high of $94,000 a ton. Though they seemed on pace to recapture that same magic, Cobalt prices are now declining from their April heights of $79k. Lithium, meanwhile, has just started retreating after hitting nearly $50k/ton in March. Even so, they stand fairly tall at around $46,000. Nickel prices are hardly determined by technology alone, but they have still spent the last week or so searching for a solid bottom.

But here’s the thing about Goldman Sachs’ recent proclamation: it’s incredibly early, and it doesn’t really consider the facts. If you read any of the articles on the matter, you’ll note that the organization has largely hinged their prediction on supply issues. In their words, the lack of a healthy supply chain will cause “a multi-year softening path for fundamentals,” triggering a sustained surplus and, therefore, a drop in prices. And while they make allotments for demand, it’s entirely possible they aren’t making enough.

Get all the latest metals market news, from battery metals like lithium and cobalt to steel and aluminum. Sign up for the weekly MetalMiner newsletter here

electric car battery

Electric car lithium battery pack. (Nischaporn/ Adobe Stock)

The Real Supply Issue at Work is Oil

Gas prices are predicted to reach $6.00 a gallon across the US by early summer, one of the busiest traveling times of the year. And though the numbers are still out for 2022, EV sales grew by 85% from 2020 to 2021. You might recognize that this was smack dab in the middle of the pandemic.

Now, with oil surging due to the war in Ukraine and other factors, you can expect more and more Americans (and Europeans) to throw in the towel and go electric. If this happens, GS’s prediction for EV demand is going to fall way short of reality. Of course, the more EVs and hybrids you sell, the more batteries you’re going to need.

While far from a forgone conclusion, this is still a perfectly reasonable scenario. If Russia’s war continues and oil supplies don’t get a significant boost, we might only be looking at a “brief pause” in the battery metals gold rush.

One thing’s for sure: other companies are betting against Goldman Sach’s claims. Just this past Friday. Chevy reduced the price of the 2023 model Bolt to just $26,595, making it the cheapest electric vehicle in history.

As EVs become more affordable (and more tempting), you’re going to see some major shifts across multiple commodities. What matters now is ensuring you’re on the right side of those moves.

The metal marketplace moves fast. You can keep yourself properly informed with MetalMiner’s monthly MMI Report. Sign up here to begin receiving it completely FREE of charge. If you want a serious competitive edge in the metals industry, try a demo/tour of our revolutionary insights platform here.

Nickel prices are seeing a lot of attention due to an overall lack of liquidity on the LME contract. But what exactly does this mean? Moreover, what does it mean for buyers looking to mitigate price problems in the face of global supply problems?

The metals market moves fast. Sign up for the weekly MetalMiner newsletter here and never miss another opportunity.

Understanding Price, Procurement, and Price Discovery

Every manufacturing CEO wants their procurement teams to do three things well. First, they want them to understand metal price trends from a short-term perspective. Second, they want them to know where prices will go from a long-term perspective. Finally, they want sound buying strategies based on that forecast.

Why do CEOs want this? Because at the end of the day, they need to better predict their margins if they’re going to keep shareholders happen. After all, there’s no better way to earn the ire of shareholders than poorly projecting profits.

Today, procurement departments with a substantial metal spend as a percentage of the cost of goods sold (COGS), forecast and manage profitability relying heavily on market fundamentals. In short: supply and demand.

Unfortunately, that methodology tends to provide a lot of “false positives. This is when a market based on limited supply indicates high prices, yet they remain low. You also have to contend with “false negatives.” Logically, this is when surplus inventory signals lower prices, but they remain stubbornly high.

The “new” way of forecasting metal prices provides more clarity and, more importantly, allows for more accurate buying decisions. This new methodology uses a mix of Artificial Intelligence (historical prices) and Technical Analysis (the study of price action as traded on exchanges).

A technology-driven approach like this helps buying organizations better understand where prices are most likely to go. In turn, this directs them on which kind of buying decisions to make. However, when an exchange-traded metal price loses its liquidity, the process known as “price discovery” breaks.

What Does Loss of Liquidity Actually Mean?

Simply put: liquidity refers to the number and volume of trades placed by active traders and market makers buying and selling a contract. Before March 8, the LME nickel contract typically had 10-12k contracts traded daily. Since then, LME nickel volumes have declined to around 2-3k contracts a day. This means that the LME has lost over 50% of its nickel liquidity ( a conservative estimate). As one might expect, this lost volume severely impacts price movement.

Let’s look at what happened to LME Nickel contracts after prices soared to over $100,000/mt:

Nickel price chart

As you can see, when liquidity disappears, industrial buying organizations purchasing nickel (or stainless steel containing nickel) have a harder time mitigating price risk.

Now, market makers and corporates are still trading at normal volumes on other contracts like aluminum, copper, and zinc. But in terms of nickel, SHFE contracts have not gained enough volume momentum to become significantly higher than the LME.

MetalMiner Insights tracks nickel and other contracts and lets buyers know when and how much they should buy.

Therefore, the future of the LME nickel contract will depend on how much volume/liquidity becomes openly available. If little to no volume returns, prices will move very slowly. In that case, the risk for the LME increases as low liquidity signals a lack of price discovery on the exchange.

Nickel Prices Will See Ramifications for Some Time

All of that said, buying organizations can still hedge against nickel using the SHFE contract. In fact, MetalMiner’s own trading desk has also traded JJN, a nickel-based ETF.

As previously reported by MetalMiner, the LME made a big mistake supporting Tsingshan, the nickel stainless producer that placed big bets on nickel prices falling. The company was over collateralized/margin called instantly once the LME nickel contract began to skyrocket.

Also, the LME retracted trades made off that price move. That means the ones left holding the bag made no profit, even though they were on the right side of the coin, so to speak. What should have happened was Tsingshan facing a margin call, losing, and paying out the profits the buyers deserved.

While some market observers may feel Tsingshan was “too big to fail,” the move by the LME has created a lot of distrust. Many market makers have fled the exchange altogether, ruining the possibility of a future influx of high volume/liquidity from retail.

Currently, it appears the LME nickel contract will suffer the balance of this year and possibly next year with low liquidity. You may remember the same thing happened with GME (Gamestop) back in 2021. When Robinhood halted trading of GME and AMC, it fostered a ton of distrust in the app.

Ask yourself: who would want to buy into the  Robinhood-Marvin Capital scandal of the metals market?

 You can keep yourself informed about all the latest metal news with MetalMiner’s monthly MMI Report. Sign up here to begin receiving it completely FREE of charge. If you want a serious competitive edge in the metals industry, try a demo/tour of our revolutionary insights platform here.

 

 

 

 

The London Metal Exchange’s (LME) nickel price shot up by more than $1,000/mt on Friday Feb 25, a rise that one analyst directly connected to Russia’s invasion into Ukraine.

The official, three-month nickel bid price reached $25,625 per metric ton on Feb. 24, The price increased 4.3% on the day from $24,575/mt, data from the bourse showed.

Source: MetalMiner Insights

Therefore, prices could continue moving higher. Russia’s Norilsk Nickel serves as a major provider of nickel to global markets, an analyst told MetalMiner.

Moreover, Russia provides over 7% of global nickel production. Norilsk’s sales volume for 2021 reached 193,000 metric tons. This represents an 18% drop from the 235,709 metric tons produced in the previous year.

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LME warehouse stock levels

In addition, stocks of the metal in LME’ warehouses fell to 96,308 metric tons in January. This represents a 61.3% drop from the 248,962 metric tons for the same month in 2021, data from trading company Westmetall showed.

Although Europe’s need for nickel makes it unlikely that the company would directly come under sanctions, the analyst believed that measures to cut Russia’s access to capital markets in the West would further push up global nickel prices. That, in turn, could delay the company’s projects.

“I can see the squeeze on the finance side,” the analyst noted.

The alternative could drive Norilsk to seek financing from China. This could turn into offtake agreements as one method of payment. This could cause the company to become more reluctant to sell to non-Chinese markets.

Join the MetalMiner team for a 30-minute briefing on the aluminum and carbon steel markets as a result of the Russian invasion of Ukraine. The webinar runs from 11:00-11:30 central time on Wednesday, March 2.

Sanctions issued

The European Union announced in the early hours of Feb. 25, a row of sanctions against Russia.

European Commission President Ursula von der Leyen stipulated a five-pillar plan, which “includes financial sanctions, targeting 70% of the Russian banking market and key state-owned companies, including in defense.”

In addition, other sanctions will limit Russia’s access to technology. These sanctions could cover semiconductors or cutting-edge software, von der Leyen said.

Finally, the United States also introduced sanctions on Feb 24 against two of Russia’s largest financial institutions. These include the stet-owned VTB Bank and Sberbank. Those actions could cut their direct access to the dollar.

Ed Note: MetalMiner will publish a follow-up piece on the likely impact of sanctions on Monday, Feb 28

Stainless and electric vehicle batteries

About 70% of refined nickel goes to stainless steel production, specifically for austenitic, the analyst stated.

Another application for nickel is in batteries, such as for electrical vehicles, though the purity levels for that application do not need to be as stringent, the analyst added.

Companies can track the impact on metals prices by signing up for our Monthly MMI reports. The Stainless MMI, the Renewables MMI and the Automotive MMI all provide a gauge of inflation/deflation for global metals markets

Norilsk reported a full year EBITDA of $10.5 billion, up 37% year on year from about $7.67 billion the company on Feb. 10.

In addition, consolidated revenue was 15% higher at $17.9 billion, from almost $15.6 billion.

The Stainless Monthly Metals Index (MMI) rose by 7.46% from January to February.

Nickel prices surged to an 11-year high last month, due to plummeting LME warehouse inventories. Prices retraced in late January after a minor sell off, but managed to rebound. As prices climb toward recent highs, they may either breakout to new levels. Alternatively, they can reject those levels and fall back within the current trading range.

U.S. producers object to A&T Stainless petitions 

Last month, MetalMiner reported A&T Stainless, the joint venture between Allegheny Technologies (ATI) and China’s Tsingshan, filed for a Section 232 exclusion for the import of Indonesian “clean” hot band sourced from the JV’s Tsingshan plant. Following the filing, U.S. producers pushed back.

U.S. producers filed objections balking at the claim that “clean” hot band (free from residual elements) was ever necessary. Domestic producers reject the argument that the DRAP line required this “clean” material.  Prior U.S. slab supply never had such a requirement.  Outokumpu and Cleveland Cliffs also argue that the Indonesian hot band contains a larger carbon footprint than U.S. material. Indonesian band uses nickel pig iron instead of stainless scrap. The exemption decision will likely come late in the first quarter after a review of the A&T Stainless’ surrebuttal.

MetalMiner’s free weekly newsletter is the easiest way to track the A&T Stainless trade case.

Stainless producers limit allocation products

Meanwhile, North American Stainless (NAS), Outokumpu (OTK) and Cleveland Cliffs (Cliffs) continue to specify the alloys and the products accepted within an allocation. 201, 301, 430 and 409, for example, remain restricted by mills as a percentage of the total allocation. Light gauges, special finishes and non-standard widths also have limits within the allocation structure. Furthermore, the allocations occur monthly so service centers and end users must fill their annual allocation in equal monthly “buckets.” NAS started to accept orders for April delivery.

Nickel price surge underpinned by low inventories

Nickel prices spiked in January to an 11-year high. By Jan. 21, LME warehouse stocks dwindled to 94,830 metric tons and primary three month nickel prices hit $23,720/mt. Prices managed to rebound during the final days of the month, but since resumed their ascent as prices chase the late-January high. In spite of the rebound, LME warehouse inventories continued to decline. Inventories now sit beneath the 90,000 metric ton mark as of the early days of February, a low not seen since 2019.

The narrowing of warehouse inventories come as nickel sees strong demand from both the stainless and emerging electric vehicle (EV) sectors. While the stainless steel sector will likely cool throughout the year, as noted by MetalMiner’s own Stuart Burns, nickel’s usage in batteries that power EVs will likely accelerate alongside the continued growth of that sector. Global electric vehicle sales more than doubled in 2021 from the year prior. According to data from Rho Motion, electric vehicles sales reached beyond 6.36 million in 2021 as compared to 3.1 million in 2020. China alone represented roughly half of last year’s sales.

If you need to track monthly metals inflation/deflation, consider signing up for our free monthly MMI report. 

In spite of the recent squeeze, prices nonetheless remain far beneath the 2007 surge. LME nickel prices reached $50,000 per ton in 2007, as LME warehouse inventories dropped below 5,000 tons. While current nickel prices remain squarely within an overall uptrend, the price remains well off the 2007 peak.

Actual metals prices and trends

The Allegheny Ludlum 304 stainless surcharge rose by 2.62% to $1.27 per pound as of Feb. 1. Meanwhile, the Allegheny Ludlum 316 surcharge rose by 2.85% to $1.80 per pound.

Chinese 316 cold rolled coil increased slightly by 1.92% to $4,315 per metric ton. Similarly, 304 cold rolled coil rose by 2.36% to $2,776 per metric ton. Chinese primary nickel jumped by 10.29% to $26,651 per metric ton.

LME three-month nickel rose by 7.71% to $22,350 per metric ton.

Indian primary nickel increased by 7.38% to $22.88 per kilogram.

 

 

MetalMiner’s Stuart Burns touched on the rapid swing back downward for the aluminum price, which surged on news of U.S. sanctions on Russian oligarchs and companies but quickly dropped when the U.S. Treasury opened the door to potential easing of sanctions.

Buying Aluminum in 2018? Download MetalMiner’s free annual price outlook

But aluminum wasn’t the only metal to see its price drop precipitously in the last week.

LME nickel rose 15.8% between April 3 and April 19, from $13,555/mt to $15,700/mt. That surge has reversed, however, in recent days.

From that $15,700/mt mark, the price has dropped 10.7%, down to $14,025/mt as of April 23.

LME nickel price. Source: LME

The nickel price jumped 10% in a single day last week, the Financial Times reported, marking the biggest one-day jump since 2008, on concerns regarding the potential for sanctions to spread to Russian firm Norilsk Nickel.

Norilsk, however, was not among the 12 companies listed in the sanctions announced by the U.S. Treasury April 6.

Nonetheless, with the U.S. Treasury opening the door for the easing of sanctions if Russian oligarch Oleg Deripaska steps down from his role with aluminum giant Rusal — one of the companies listed in the initial sanctions announcement — the price of aluminum and other metals, like nickel, have tracked back down.

Given Rusal’s stake in Norilsk, last week’s fears regarding a potential supply crunch have for now been somewhat allayed. As such, with the Treasury’s softened stance on sanctions, prices have come back down.

On Monday, the Treasury extended the deadline for U.S. individuals to wind down activities with Rusal to Oct. 23.

“RUSAL has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska, but the U.S. government is not targeting the hardworking people who depend on RUSAL and its subsidiaries,” Treasury Secretary Steven Mnuchin said in a prepared statement. “RUSAL has approached us to petition for delisting.  Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider RUSAL’s petition.”

Want to see an Aluminum Price forecast? Take a free trial!

At least for now, that’s good news for electric vehicle manufacturers, who are increasingly looking to nickel for use in lithium-ion batteries.

Our Stainless MMI inched up 2% in October. However, it was at the beginning of November when prices surged. Three-month London Metal Exchange nickel jumped above $11,000/mt, the highest level since August 2015. By the way, we predicted this move just a few weeks ago.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Robust Chinese demand for nickel and other metals has broadly supported a price rebound from multiyear lows that were hit earlier this year. Not only nickel, but the whole metal complex is hitting new highs. When investors turn bullish in the metal sector, any bullish news can make the individual metal increase in price and, nickel is particularly enjoying a bull narrative.

Bullish Industry Fundamentals

First, Indonesia recently announced that the country will “almost definitely” keep in place a ban on nickel ore and bauxite exports. Just a few days ago, nickel investors were concerned that Indonesia was considering lifting the ban. Now that those fears have waned, investors seem willing to chase prices higher.

Stainless_Chart_November-2016_FNL

Second, The Philippines announced that it will prolong the ban on new mines, reviewing all environmental permits previously granted to nickel producers. The announcement dashes industry hopes that some restrictions may be lifted following the audit that was finished in August.

Two-Month Trial: Metal Buying Outlook

The news come after a quarter of the country’s miners have been closed with another 20 of them under the risk of suspension.

Bullish Price Action

On top of the above, we are seeing a very constructive price action. After nickel jumped 25% from June to August prices rested in a narrow range for the next three months. Despite a strong dollar in October, investors were unwilling to sell nickel. Now that momentum for investing in the industrial metals complex is picking up again, we expect nickel prices to work higher into 2017.

Exact Stainless MMI and Nickel Prices, Trends

The Allegheny Ludlum 316 stainless surcharge rose 7% to $0.58 per pound. The 304 stainless surcharges increased 12% to $0.44 per pound. The price of Chinese primary nickel inched up 1% over the month to $12,210 per metric ton. The three-month nickel price on the LME remained flat in October before rising in November as we explained above. . Chinese 304 stainless coil fell 2% to $2,464 per metric ton.

 

3M LME Nickel. Source: MetalMiner analysis of fastmarkets data

Three-month LME Nickel. Source: MetalMiner analysis of Fastmarkets.com data.

After a two-month rally in June and July, nickel prices are retracing in August. What caused nickel to rally and what is causing prices to fall in August?

Philippines Supply Down

In June and July, nickel rallied as the Philippines reviewed all existing mines in order to close those that had adverse impacts on the environment. At least eight nickel mines have been shut down so far this year, cutting around 10% of the country’s capacity.

Two-Month Trial: Metal Buying Outlook

The Philippines is by far the largest nickel ore supplier to China since Indonesia imposed an export ban for unprocessed material back in 2014. Lower production is already showing up in the export numbers. For the first seven months, China imported 13.84 million metric tons from the Philippines, down 27% from the same period last year.

The current disruptions in the Philippines have no doubt tightened the market for nickel ore triggering a price rally this year. However, will this shortage in China’s nickel-pig iron industry translate into a shortage of nickel in the global market?

Indonesian Refined Nickel Supply Up

While supply of nickel ore to China is declining, supply of refined nickel to China is rising. For the first seven months, China’s imports of ferronickel from Indonesia have surged more than four-fold to 390,700 mt. Comparing apples to apples, the nickel content of the year to date ferronickel exports equal to about 4 million mt of nickel, slightly less than the 4.13 mmt loss in the Philippines so far this year.

For this reason, we hear some analysts saying that China isn’t importing less nickel, it is just changing the form in which it imports the metal.

What’s Different From 2014?

Nickel prices surged back in 2014 to later come down. Source: MetalMiner analysis of fastmarkets data

Nickel prices surged back in 2014 to later come down. Source: MetalMiner analysis of fastmarkets.com data.

Back 2014, nickel prices surged as Indonesia prohibited ore exports. However, prices sold-off later on as miners in the Philippines moved into the trade. This time, it’s the other way around. Environmental restrictions are shrinking supply in the Philippines while Indonesia is making up for that loss.

Free Download: The August 2016 MMI Report

While prices have fallen in August, so far the decline seems like a normal price retracement after nickel gained over 30% in June and July. Also, there are two other factors that make us think that the decline won’t be as severe as it was in 2014:

  • Back in 2014, nickel prices rose independently while the rest of the industrial metal complex was falling. This time, it’s not only nickel but we also see many industrial metals rising, which bodes well for rising nickel prices.
  • It’s barely been a month since the Philippines started to shut down mines and volumes may be squeezed further after the shutdowns accounting for about 15% of output.

What This Means For Metal Buyers

The supply and demand balance for the coming months will depend on how many more mines the Philippines shut down versus how much more ferronickel/refined nickel Indonesia continues to supply. So far, we believe it’s to early to call for the end of nickel’s bull run.

Similar to copper, nickel is not metal investors’ favorite child right now. While oversupply is still and issue, only a weaker dollar and further Chinese stimulus could lift prices. However, that wasn’t the case during the month of May, driving prices down. Our Stainless MMI was no exception, falling 4%.

Two-Month Trial: Metal Buying Outlook

For the past six months, every time three-month London Metal Exchange primary nickel approached $9,500 per metric ton, prices fell short. It happened in March and again in May.

Stainless_Chart_June-2016_FNL

Recently, Russia’s Norilsk Nickel, the world’s largest nickel miner, said that in order for a sustained recovery to happen, more cuts will have to materialize. That’s a very unusual statement for a metal producer as they tend to talk up the market. According to the company, over 20% of the global nickel supply needs to be cut if we want to see a sustained recovery in prices. Read more

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