1 China GDP & PMI Data
2 Dollar to Euro exchange rate
3 Philippine exports
4 Indonesia export ban
5 Nickel inventory
As we discussed in one of our monthly reports, many nickel producers thought that prices would climb on the back of the Indonesian export ban. However, what they did not anticipate involved the alternative supply from Philippine suppliers who have taken up the shortfall. This caused nickel prices to fall more sharply than other metals this year. After exports from Indonesia had fallen, the country had considered the option of relaxing its ban on mineral exports to allow for nickel shipments.
However, Indonesia recently decided to retain its export ban. We doubt this will cause prices to rally. Thanks to the Philippines’ higher production, supply remains ample and the real issue involves weak demand. Like with most base metals, China is responsible for over 40% of global nickel demand. Although US data might look encouraging, China consumes 5 times more nickel than the US so growth here can’t make up for the drop in Chinese demand. The slump in prices now has nickel miners rethinking output. Australian miner Mincor Resources said this year it will reduce production by 56% during the second half, as it can’t sustain operations at current price levels.
Poseidon Nickel, another Australian miner also shuttered production by placing its Lake Johnson mine into care and maintenance. While some of the smaller mines have struggled, the bigger producers remain in a stronger position as they have maintained production because of scale and lower costs. With a large inventory of nickel ore, refined metal on exchanges and adequate supply of ferro-nickel, the fundamentals don’t suggest a strong argument for nickel prices to rise unless China demand picks up or production is taken offline.
Nickel prices have fallen sharply over the past year. The lows of 2009 ($8,700/mt) might provide support over the coming months but this support level could easily be broken over the course of 2016 if conditions remain bearish. Buyers should consider fluctuations below $13,310/mt as normal within this falling market, and reassess their strategy if prices break the $13,310/mt level. Based on current market conditions we could see 3M LME nickel averaging $9,500/mt next year.
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