Nickel falls from grace as bull narrative unravels - Andy Home
Reuters reported that in early March, when London nickel was trading above USD 11,000 per ton, it was the best performer among the major base metals traded on the London Metal Exchange. At a current USD 9,510 per ton, it is now down 4% on the start of the year and vying with tin for worst performer.
Early exuberance has run aground on the shifting sands of politics in the Philippines and Indonesia, two suppliers of nickel raw materials to China's massive stainless steel sector. What seemed a straightforward narrative of supply shortfall has become ever problematic in recent weeks.
The International Nickel Study Group is still forecasting a supply-usage deficit this year but it has just trimmed its expectations and adjusted its deficit calculation for 2016. Moreover, even if the INSG's assessment of a 40,000-tonne production shortfall this year proves correct, there is the not so little issue of stocks, both in LME warehouses and in China. The bull narrative for nickel appeared clear cut.
Indonesia, previously the major supplier of nickel ore to nickel pig iron producers in China, had stopped all shipments at the beginning of 2014. The Philippines, which emerged to fill the resulting gap, then generated a second supply shock in the form of eco-warrior turned environmental minister Regina Lopez. Lopez ordered the suspension or closure of almost half the country's mines, many of them nickel producers, on charges of environmental degradation.
The impact is already showing in China's trade figures. Shipments of nickel ore from the Philippines drop over the October-March rainy season every year but the amount of material imported in the first quarter of this year, 2.32 million tonnes, is the lowest since 2012, when the country was still a second-tier supplier after Indonesia.
However, just when trade flows seem to be confirming nickel's bull credentials, the narrative is starting to unravel.
Source : Reuters