LME nickel

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.

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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.”

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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.

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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.

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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.

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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%.

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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

Our Stainless MMI remained steady at 51 points. However, we currently see some factors that could lift prices in the short term.

Stainless Anti-dumping Case

On March 4, the U.S. Commerce Department launched an anti-dumping and countervailing duty investigation into Chinese imports of stainless steel sheet and strip, for possible illegal subsidies and selling prices at below cost to illegally gain market share. A preliminary determination of injury to U.S producers is scheduled by March 28.

Stainless_Chart_March-2016_FNL

China’s Ministry of Commerce didn’t respond well to the this new case, arguing that simply restoring prices via protectionist means is not the solution. Chinese steel firms have already been impacted by trade cases. Recently the Commerce Department had imposed 266% preliminary duties on imports of cold-rolled steel from China, punishing Chinese steel makers for dumping or selling below cost. In December, China received a dumping margin of 266% on corrosion-resistant steel products.

Compare Prices With The February 2016 MMI Report

These tariffs have helped U.S. imports come down this year. That led to lower inventory levels here and have given U.S. mills the ability to rise prices. Steel prices climbed over the past few weeks, and stainless prices could follow. With the threat of anti-dumping lawsuits looming, the volume of imported stainless sheet and strip had already been diminishing, which should be seen in the upcoming months. The lack of imports has already pushed out domestic lead times and could create a supply shortage once service center restocking starts. However, it’s still questionable whether prices will hold just on import tariffs alone. Low international prices will add downside pressure if stainless domestic prices rise, especially since China is the only named party. Read more

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.

Free Download: Compare Price Trends With Last Month’s MMI Report

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. Read more

The monthly Stainless MMI® registered a value of 64 in August, a decrease of 5.9% from 68 in July and another all-time low in this month where all but one index we track fell to, what we hope, is a new bottom.

Stainless_Chart_August-2015_FNL

Ever since nickel broke a key support level back in March prices have done nothing but free fall, putting nickel at its lowest level since 2009.

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Not only nickel but aluminum, copper and tin have also fallen to levels not since 2009. No one can deny the strong relationship among industrial metal prices. Read more

Nickel on the London Metal Exchange fell to a fresh low this week, trading as low as $10,440 per metric ton on Tuesday.

Free Download: July Metal Price Forecast

The metal is experiencing huge sell-offs as the Chinese stock market plunges. We can’t really put all the blame on nickel since this is not the only metal falling. Weakness in China and a strong dollar keep punishing commodities and, even more stridently, industrial metals.

Stainless_Chart_July-2015_FNL

The monthly Stainless MMI® registered a value of 68 in July, a decrease of 6.8% from 73 in June.

Bearish Fundamentals, Too

Nickel’s supply and demand fundamentals, however, agree with the bearish picture the market is painting. We see a couple of factors weighing on prices:

  • First, the Indonesian government banned unprocessed mineral exports in January. The ban on unprocessed nickel and aluminum exports still remains in place. However, after the country already relaxed restrictions on exports of copper, the Indonesian government is considering a relaxation of export restrictions on aluminum and it’s possible that nickel will be the next unprocessed ore to have its ban lifted.
  • Second, most analysts were expecting that LME stockpiles would level off. However, nickel stockpiles surged in June, adding to concerns that production is outstripping consumption. Although we’ve pointed out before that there is not always a good correlation between stockpiles and metal prices, many people might be pointing out that the underlying demand isn’t that strong.

What This Means For Metal Buyers

As nickel free-falls, prices are approaching the record low levels of 2009. Nickel could be the first base metal hit that floor. Nickel would have to fall another 17%, but with the pace we are seeing prices falling, it wouldn’t be a surprise to see this happen at some point… Read more

The monthly Stainless MMI® registered a value of 73 in June, a decrease of 3.9% from 76 in May.

Stainless_Chart_June-2015_FNL

After a small price increase in April, nickel prices fell again in May. Prices are now trading near their lowest levels in six years. Meanwhile, nickel inventories jumped to a fresh highs, accentuating an overhead of supply and cutting expectations of the bulls that expected a deficit to develop.

Demand Cannot Outstrip Supply

Although stainless demand is expected to grow moderately, service centers have plenty of inventory and that is putting pressure on US mills. Moreover, a stronger dollar last month sent most base metal prices down, including nickel.

Aluminum is one metal showing similar behavior. The demand outlook for both metals was quite optimistic. That brought bulls in to support prices from falling. However, the bearish commodity market (there’s a serious lack of demand) and a strong dollar made these two metals give up all their gains from 2014. Read more

Stainless steel and nickel prices rebounded impressively this month on our index, gaining 5.6% from a low of 72 in April. The monthly Stainless MMI® registered a value of 76.

Stainless_Chart_May-2015_FNL

3-month London Metal Exchange nickel rose in April, after falling as low as $12,200 per metric ton, the lowest levels since 2009. Technically, this recent price increase is nothing to be concerned about, at least not yet.

What the EPA’s Clean Power Plan Means For Stainless Industry

Nickel prices fell as much as 40% from October to April, so a 5.6% increase this month seems just like a normal price reaction after a significant fall.

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