Nickel analysis and forecast Q3 2015 Nickel – Waiting for LME...

Nickel analysis and forecast Q3 2015

Nickel – Waiting for LME Stocks to trend lower
Summary Nickel prices spent most of the second quarter oscillating sideways and above the April low of $12,146 per tonne. The market is waiting for Indonesian ore stockpiles at Chinese ports to drop to the extent that it chokes off much more Chinese NPI production. Separately, tightness developed in SHFE nickel – there was a shortage of brands that could be delivered against the nascent SHFE nickel contract, causing a squeeze on the SHFE that helped to underpin stronger nickel prices. When Norilsk brands were made good for delivery, SHFE nickel prices collapsed, taking LME prices with them. In late June, nickel spiked lower to $10,795 before rebounding to $12,000 and subsequently falling prey to the aftermath of the Chinese equities debacle. - See more at: http://www.fastmarkets.com/base-metals/nickel-analysis-forecast-q3-2015#sthash.Ph1H089w.dpuf

Overall trend – Nickel prices were bouncing along the bottom, under pressure from plentiful supply, high stocks and weak demand while the global economy struggles to make headway. Prices suffered a knee-jerk sell-off – tightness in China was wiped out when the SHFE approved Norilsk brands as good delivery. Generally, we are not bearish on demand; indeed, we think recent data, including Chinese and European PMIs, look encouraging. In addition, as with aluminium, stainless steel remains a metal of choice for a growing number of applications. Stainless steel production has had annual compound growth rates of around 5.6 percent since 1980. Slower growth in stainless steel demand is seriously weighing on demand for nickel – slower growth leads to destocking, which hits apparent demand hard. If, however, the better economic signs continue, there is potential for a return to hand-to-mouth demand and possibly restocking given how low prices are and the bullish medium-term outlook.

Slow demand growth – Global stainless steel demand growth is struggling this year, rising just 1.1 percent in the first quarter; demand remained weak in the second quarter. Higher iron ore and energy prices and low steel prices are squeezing producers’ margins, which is affecting stainless steel as much as it is crude steel. In addition, with more anti-dumping measures against China, Chinese production of stainless steel is likely to be reined in, although this should boost regional demand in those countries to which China was exporting, notably Europe and the US. After stainless steel growth of 8.3 percent in 2014, growth this year is expected to be closer to 3.5 percent.

NPI production in China – The market has been waiting for and, at times, anticipating the decline in nickel pig iron (NPI) production in China. It has been a long time coming after the Philippines stepped in to fill the gap as best it could when Indonesia stopped exporting in 2014. The ores that were amassed in China ahead of the ban are still vital for the cheaper NPI plants; stockpiles of these Indonesian ores at Chinese ports are dwindling. They stood at 3.7 million tonnes at the end of May after 6.4 million tonnes at the start of the year and a peak of 18.9 million tonnes in February 2014. At this rate of decline, the much-needed Indonesian stocks are likely to be depleted in six months. While nickel ore imports by China are off 47 percent in the first five months of the year, ferro-nickel imports have jumped 111 percent to 258,636 tonnes. Indonesia was the largest exporter, exporting 55,202 tonnes, up from zero tonnes last year – the result of Chinese firms building capacity in Indonesia. This means the lost output from Indonesia since early 2014 will not be lost forever – as ferro-nickel and NPI plants are built in Indonesia, the amount of nickel flowing from Indonesia will gradually recover although it will take a good few years for output to reach the 450,000 tonnes of nickel units that came from Indonesia in 2013.

LME stocks a likely barometer – As NPI production tails off, Chinese stainless mills will need to switch to using more class 2 (ferro-nickel) and class 1 nickel (LME grade) – they are likely to start using the cheaper class 2 grades first. But it seems inevitable that LME material will be required at some point; when that happens, a steady drawdown in stocks is likely. Stocks started to fall at the start of May after an absence of inflow in April, still, inflows remained steady so total stocks remain near record highs. For now, the pick-up in outflow is thought to be tied to metal being shipped to Shanghai not for consumption but to be made ready for delivery against short contracts on the SHFE. So although they are supportive for prices, we feel the stock withdrawals are not fundamentally driven yet. Some imports are also being used for financing purposes. - See more at: http://www.fastmarkets.com/base-metals/nickel-analysis-forecast-q3-2015#sthash.Ph1H089w.dpuf