June 12, 2019 / 1:34 PM / 8 days ago

Nickel prices under pressure from vanishing deficits

LONDON (Reuters) - Rapidly rising nickel supplies and slowing demand from stainless steel mills are weighing on prices of the metal, which are likely to come under further pressure this year as deficits disappear.

Reasons behind weaker demand from the stainless sector, which accounts for 70 percent of global nickel consumption estimated at 2.4 million tonnes this year, include overstocking of stainless steel by producers earlier in 2019.

Also a major influence is the trade dispute between the United States and China, the world’s two largest economies, and its potential to disrupt growth and demand.

Benchmark nickel on the London Metal Exchange, at $11,800 a tonne, has fallen 25% over the last 12 months.

Nickel premiums: tmsnrt.rs/2X2BwMa

China nickel pig iron output: tmsnrt.rs/2X8s7T8

Nickel stocks: tmsnrt.rs/2X2HhJM

Nickel market balance: tmsnrt.rs/2R8DrJH

Indonesia nickel output: tmsnrt.rs/2R8Ifid

Nickel and stainless prices: tmsnrt.rs/2X8eZ0q

“The market will pretty much be balanced this year - there’s no massive deficit to assist prices and the trade war is hanging over the market. We’re looking for an average at about $12,300 this year,” Wood Mackenzie analyst Andrew Mitchell said.

LME nickel prices averaged above $13,000 a tonne in 2018.

“Stainless demand is not particularly strong,” Mitchell said. “China has imposed anti-dumping duties on stainless steel imports and Indonesian producers are looking for other markets.”

China is the world’s largest stainless steel producer.

In March, China imposed temporary anti-dumping measures on stainless steel products from Indonesia, the European Union, Japan and South Korea.

Analysts expect China’s stainless steel production to fall in coming months as mills have overstocked and prices are sliding, while nickel pig iron (NPI) supply is climbing fast.

“This year NPI production in China and Indonesia will grow more than 20% to more than 900,000 tonnes,” Jim Lennon, managing director of Red Door Research, said.

“Globally, NPI production will grow about 200,000 tonnes. We think the deficit this year will be about 50,000 tonnes from 150,000 tonnes last year.”

A deficit would typically mean draws on stocks, which have been sliding for more than two years now. Stocks in LME-approved warehouses are at 164,000 tonnes, compared with around 380,000 tonnes in November 2017.

Nickel stocks in warehouses monitored by the Shanghai Futures Exchange, at around 9,000 tonnes, are a fifth of the level in January 2018.

“Some of that metal is sitting off warrant (not in exchange warehouses). Stock numbers are not displaying a completely accurate picture,” a nickel trader said. “Physical market premiums tell a more realistic story.”

Premiums for nickel in the physical market, paid above the LME benchmark price, in China have languished around $235 a tonne since early May, while those in Europe at around $225 a tonne have been falling since April.

Over the longer term, prices will have to rise to incentivize new projects and capacity to meet soaring demand from the electric-vehicle battery sector, which some expect to be on an upwards trajectory from next year.

“New applications, particularly EV batteries, which need a higher purity nickel are changing the face of the market,” said Roskill analyst Thomas Hoehne‑Sparborth. “To build capacity you need higher prices.”

Reporting by Pratima Desai; Editing by Dale Hudson

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below