Nickel Pins Hopes On Better Demand

The boost to Nickel prices seen in the first half of 2014 was seen as a result of concerns of supply disruption after the biggest producer Indonesia, introduced a ban on Nickel ore exports. However, the surge did not last long as this came as a blessing in disguise for Philippines, which entered the market soon after the ban and tried to plug the gap. As a result, anticipated nickel shortage never came into existence, with 2014 even ending with a 125,000-metric tonne surplus. Following this, Nickel prices which had rocketed by nearly 50 percent in the first five months of 2014 ended the year just 7 percent higher.

Current scenario

In September 2015, Nickel prices are trading near six-year low levels as the major consumer China struggles with a slowdown which only accelerated post the recent equity market bust. Besides, economic data has not been very encouraging adding to worries that the efforts taken by the People’s Bank of China (PBoC) and the Chinese government are not sufficient and needs further stimulus to boost the flagging economy.

Further, Nickel markets look well supplied as Philippine nickel miners are betting the dryness linked to the El Nino weather will let them mine until year end instead of typically shutting due to seasonal rains. Taking advantage of this situation, Nickel Asia, Philippines' biggest nickel miner by output, expects ore exports to hit a record of over 19 million wet metric tonnes (WMT) in 2015, versus 17.9 million WMT in 2014. Lower January-June rains have already helped it ship 9.68 million WMT over the period, up 25 percent on year. Country’s third biggest ore producer Global Ferronickel Holdings Inc is upbeat regarding this dry weather and expects to ship a record 6-7 million WMT this year. The miners are now pinning their hopes on a pickup in Chinese demand as Philippines accounted for almost all of China's nickel ores and concentrate imports in the first half.

On the stocks front, Nickel in LME-approved warehouses nearly doubled in 18 months to record highs above 470,000 tonnes in June’15 and currently stands near 450,000 levels.

On the contrary, demand is set to pickup as indicated by the latest trade figures which showed China is likely to continue increasing refined nickel imports over the rest of 2015 after whopping gains of 250% in June 2015 to 38,545 mt from 11,014 mt in June 2014. July trade figures confirmed this anticipation with China customs data showing the country imported 46,362 mt of refined nickel in July, up 20% on month and up 162% on year from 17,666 mt in July 2014. This could partly be attributed to the registration of three nickel brands by Norilsk Nickel for delivery against the Shanghai Futures Exchange nickel contract that was launched in Mar’15.

Imports of nickel raw materials are still falling, down 37 percent in the first half, with flows of Philippine ore failing to fill the gap left by the Indonesian ban on exports. The pressures on China's nickel pig iron (NPI) producers are building as stocks of ore, particularly the high-grade ore that other countries such as the Philippines can't replace, are fast running out.

Recently, the Indonesian Government reiterated that the ban remains in place as the relaxation of the mining policy would harm its commitment to fully implement the 2009 Mining Law. The absence of supply from the country is in line with the shaky demand segment and enhanced production volume coming from producers. Still, it is likely that the ban could pave the way for a supply deficit in case the demand pickup finally happens.

The only savior for Nickel prices in 2015 would be an overwhelming demand, which is quite unlikely given the seriousness of the slowdown in China and ambiguity regarding the Federal Reserve decision on the first ever US rate hike in nearly a decade.