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April 10, 2014 6:36 pm
Nickel jumps above $17,000 in wake of Indonesia export ban
By Neil Hume
The price of nickel has risen above $17,000 a tonne for the first time since March 2012 as speculative investors opened bullish positions on the back of an export ban.
Nickel, an ingredient in stainless steel, has been in focus since January when Indonesia outlawed the export of unprocessed ores.
The ban has the potential to be a game-changer for nickel, which has been plagued by oversupply and high inventories, according to several analysts. China relies heavily on laterite nickel ores from Indonesia to produce nickel pig iron,
a cheap alternative to refined nickel.
If this supply is permanently cut off, China will be forced to reduce its use of NPI and buy higher-grade metal for use in its smelters. This, in turn, will reduce stockpiles of nickel that have built up since the global financial crisis.
Many investors had doubted the ban would hold – until now. Open interest in nickel – the total amount of outstanding derivative contracts – has climbed more than 25 per cent in the past month, according to Standard Bank.
“In conjunction with a 14.5 per cent increase in prices over the same period, this suggests that new positions have been added,” says Leon Westgate, analyst at the bank.
Nickel for delivery in three months on the London Metal Exchange rose 2.4 per cent to $17,091 a tonne yesterday, taking its gains since the start of the year to 16 per cent.
If the ban remains in place beyond July’s presidential election in Indonesia, Macquarie says the global nickel market will see “massive” deficits of 134,000 tonnes, 106,000 tonnes and 77,000 tonne in 2015, 2016 and 2017 respectively.
“In the absence of a change in Indonesian policy, we think that by 2016, the market will get tighter than in 2006-07, when prices traded in the $30,000-$50,000 a tonne range,” the bank said in a report.
Chinese NPI producers are scrambling to find replacement ores, principally from the Philippines and to a lesser extent New Caledonia. Neither country produces enough high-grade ore to replace lost supply.
“Of the 450,000 tonnes of nickel in ore lost from Indonesia exports, the response from other suppliers is at most 50,000-75,000 tonnes,” Macquarie said.
“The question then is how quickly NPI production can come on stream in Indonesia. The answer is not quick enough . . . Even on what we consider optimistic assumptions, global NPI production will not regain 2014 levels by 2020.”
In addition traders are not selling the large volumes of nickel ore stocks that have accumulated at Chinese ports. Instead, they are waiting for higher prices before they release inventory into the market.
As a result, the spot price for high-grade nickel ore has surged more than
40 per cent since January and is close to $70 a tonne, including the cost of shipping to China. Faced with NPI production cuts, end users China are buying up primary nickel.
https://www.ft.com/intl/cms/s/0/126b81bc-c0d0-11e3-8578-00144feabdc0.html#axzz2ybMFEndc