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The fundamentals for nickel remain poor. The Bank expects that the market will be in surplus for the next several years, the only real question being to what extent.

17 Nov 2012

Commodity Online
Despite their longer-term concerns with respect to the nickel market, Deutsche Bank expects that an improvement in overall physical conditions over the next couple of months, in addition to favourable seasonality trends could see the nickel price move off its recent lows around $16,000/t towards the $17,500/t level.

Nickel price performance has been reasonably strong from the end of February to mid January. This pricing trend seems to correspond to a regular tightening in stainless markets in Europe. A regular increase in stainless base prices in Southern Europe at the beginning of the year, is indicative of increased buying activity during this period.

“Furthermore, we expect that coincident activity may be experienced in China as conditions appear to be improving on the ground, with inventories for many different commodities drawn down over the past quarter.” the Bank added.

Words of caution

The fundamentals for nickel remain poor. The Bank expects that the market will be in surplus for the next several years, the only real question being to what extent.

Supply growth, while hampered due to challenging economics in the West, continues to rise in China via nickel pig-iron (NiPI) capacity additions which could reach 500kt over the next couple of years (from over 300kt currently).

Certainly the ban on ore exports from Indonesia seems to be having little impact on NiPI feedstock availability as Philippine ore exports have increased to offset.

Finally, while demand growth for stainless is likely to stabilise near-term and improve through 2013, it is not expected to be sufficient in magnitude to rebalance the market.

The figure shows the updated cash cost curve for the nickel market, where the Bank notes that there has been considerable deflation in costs, particularly at the top end of the curve, with Chinese NiPI producers replacing older blast furnaces for EAF’s (Electric Arc Furnaces).

Furthermore the decline in coking coal prices, power tariffs and freight is assisting in improving the competitive position of this block of capacity on the cost curve.

In addition to falling costs, while the Indonesian ban on nickel ore exports to China initially impacted output, NiPI producers seem to simply have shifted their buying to the Philippines.

China factor

Recent feedback from visiting Deutsche Bank analysts suggests that the sentiment in China is improving; furthermore the Bank notes that their China real activity index appears to be moving higher, albeit modestly.

“While we continue to wait for updates of Macau Gaming Receipts (our sentiment indicator) the other constituents: cement output, rail traffic and power output have been rising. It is too early to suggest that this represents a true inflection point in our view; nevertheless conditions look set improve into the
end of the year.” the Bank said.

“We note as well that steel prices within China seem to be stabilising even as steel output has recovered, suggesting that metal is being consumed at the fabrication level.” the Bank added.

The Bank believes that stainless steel consumption growth will revert to a long-term trend of between 4-5%.

“We expect that the transition of the Chinese economy, from one dependent on fixed asset investment as a source of growth to one oriented towards consumer demand, will be critical for the long term health of the nickel industry.” the Bank said.

Furthermore, while demand for 300 series (nickel intensive) stainless should improve vis-a-vis 200 series, the Bank would anticipate that the nickel/scrap ratio should decline, partially offsetting the increase in primary nickel demand.


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