Starting a new thread for Nickel news
27/11/2018. Nickel prices likely to touch Rs870 in next 2 months..that translates to about USD$8/lb
Disturbance in nickel production in Brazil might act as a boost for prices in the near term
Moneycontrol Contributor @moneycontrolcomPrathamesh Mallya
Nickel was on a roll in the first half of 2018, up 18 percent in the period (Jan-June 2018), when it was trading above $15,000 per tonne on the LME. The potential boost to nickel demand from its use in electric vehicle segment supported the prices in the first half.The Philippines, one of the largest nickel ore producers implemented fresh nickel mining curbs post a deadly landslide in mid-September backed by President Rodrigo Dutert in environment protection drive.
hese mining curbs included 29 of 48 mines operating in the Philippines, which are nickel producers supplying ores to China.
Eleven of the nickel mines had zero output during the period because their operations were suspended or they were under maintenance status which led to a fall in the nickle ore output by 10 percent in the first half of 2018.
The government of the Philippines environmental audit resulted in a closure of 10 mines and recently 20 more mines were added to the list. These 30 mines include 18 nickel mines, which account for half of the country's nickel output, or around 10 percent of world nickel ore output.
Trade war hammers nickel prices:
Nickel didn’t start off well in the second half as prices declined to six-month lows in September weighed down by worries about slow growth in the Chinese economy followed by constant escalating trade tensions between US and China and weak steel prices.
Since September, LME Nickel prices and MCX Nickel prices have declined by 11.18 percent and 10.48 percent respectively.
Prices have fallen significantly in the second half of 2018 amid rate hikes by US Fed, slow global economic growth and demand for base metals due to trade tensions.
Nickel which is largely used to make stainless steel was hampered also due to the downfall in the Chinese steel futures and the ongoing trade wars between the US and China.
Chinese Shanghai steel futures constantly declined (around 8 percent in the period Sep-Nov’18) amid signs that steel output in the world’s top producer would remain high. Excessive supply of stainless steel has played a major role in the downfall of nickel prices globally.
The trade tension further worsened the situation for industrial metals as US imposed tariffs on $200 billion worth of Chinese imports and China retaliated by imposing tariffs on $60 billion worth of US imports in September. Trade tensions have created serious demand concerns for industrial metals.
Appreciation in the Dollar Index adds to the trouble:
The US Fed raised its interest rates for the third time in September 2018 by 25 basis points to 2.25 percent. Hike in rates led to an appreciation of the Dollar Index making the metals expensive for other currency holders. Earlier Fed had increased the rates in March and June.
Fed continues to maintain its hawkish stance and might raise rates again in December 2018 as the US economy is growing at a strong rate (grew at an annual pace of 3.5 percent in the third quarter) and drop in the unemployment rate by 3.7 percent.
Employers in the US added 250,000 jobs in October. Further, the rate hike by Fed would push the Dollar Index higher, pressurising the metal prices.
Inventory data tells a different story:
Nickel inventory level in LME certified warehouse has fallen for 12 consecutive months. It stands at 215,442 tonnes now which is more than 45 percent less compared to last October when there were 400,000 tonnes.
Another negative factor which has hampered nickel is increasing the output of Nickel Pig Iron (NPI), a lower grade nickel ore substitute for refined nickel often used in the production of stainless steel. China's NPI output has been increasing constantly which weighed the nickel prices even lower.
Will the electric vehicle story boost nickel price?
Nickel prices were supported by the buoyant outlook due to increased demand from electric vehicles segment and the steel industry.
Current trends levels show electronic vehicle segment would change the demand structure of nickel. Currently, the battery sector consists almost 5 percent of the global nickel demand. In the first two-quarter of 2018, nickel demand from the battery, the sector has increased about 38 percent against the same time frame last year.
Outlook:
Nickel prices have been on a slide as the trade war between the US and China does not show any signs of ebbing. Stronger dollar and interest rate hikes in the US on account of good economic data in the US are further pushing factors for nickel prices to fall in the current scenario.
The good side of the story for nickel comes from the fact that Brazil court has ordered Vale SA, one of the country’s biggest companies to stop its mining operations in the Northern State of Para.
The mining unit accounts for some 10 percent of Vale's total nickel production. Vale is one of the world's largest producers of the metal.
Disturbance in nickel production in Brazil might act as a boost for prices in the near term. We expect nickel prices to move higher towards Rs 870 mark from a two-month perspective.
The author is Chief Analyst- Non-Agri - Commodities & Currencies at Angel Broking.
