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Nickel price hit its lowest level in the last 12 years

26 November 2015
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Photo: Norilsk

On the London Metal Exchange there was a new shock, when the price of nickel reached its lowest level in the last 12 years.

Beginning of this week has brought new shocks on the London Metal Exchange. On Monday 23th of November 2015 prices of nickel fell to only 8,160 US dollars per ton for cash settlement, and to 8,200 $/ tonne for LME 3-month. Such low price have not been reported since mid-2003. Nickel is the first metal that fell below the limit values recorded in 2009.


Nickel prices will continue to decline

Compared to other metals, nickel, which is mainly used to produce stainless steel, is shaken by the largest annual decline in prices. From $ 15,000 / t in early January, it fell to $ 8,200 / t which means is has lost more than 45% to its own values.
Andrew Driscoll from investment company CLSA commented decrease of nickel as follows: "The global market of nickel is only about two million tons. It is a very small market, which increases the volatility of the price"

Other analysts also agree with his opinion. This extremely low price was influenced by several important factors such as the slowdown of the Chinese economy, reduced demand for stainless steel in Europe, disturbances in supply of nickel, the uncertain future. All these are elements that literally made the nickel market collapse. On the other hand, the reduction of inventories as well as the decline in nickel production should lead to a deficit that will eventually raise the value of nickel in the global market. CLSA and USB therefore estimate that in the first half of next year, the value of nickel will jump to $ 13,000 / t.

How possible could it be, depends mostly on the demand and the drastic reduction of inventories. On the London Metal Exchange over 410 thousand tons of stored nickel is registered. This is 60,000 tonnes less than 5 months ago, but is still four times higher than stocks that have been recorded in 2012. These are official data, but it is unknown how much nickel is stored in unregistered warehouses. Besides, according to some projections spending of nickel stocks will slow down. It is expected that consumption of stainless steel will remain at the current level, or possibly increase 1 to 2% and regarding the fact that over 70% of the produced nickel is consumed for the production of stainless steel, it does not look good for stored metal.

Looking from this point of view, it is more and more certain that the price of nickel has not yet reached the bottom.

Short-term stabilization of nickel shortly before the meeting in China

After Monday, when nickel lost nearly 20% of its price comparing to the beginning of the month, l on Tuesday it slightly recovered, rising by 2.9% to $ 8,445 / t. Yesterday's trading ended with the official price of $ 8,720 / t which is still at the level of medium price in 2003.

The jump in prices, in only two days, is primarily influenced by high expectations before the meeting of Chinese producers of nickel, which should be held on Friday. That meeting is closed to the public, however, according to unofficial information, the main theme will be steep decline in prices of nickel, and taking appropriate cuts in production. Since there is no confirmation that the concrete solutions will be reached on the meeting, the current stabilization of nickel prices could be short.

The movement of prices of nickel from 2000 until today

nickel price chart


Where is the deficit?

Looking at announcements of market analysts from 2014, the current development can not support their predictions. Among other things, Patricia Mohr (Scotiabank) statet back then: "When the Chinese NPI factories run out of supplies of materials - will coerce the Chinese stainless steel producers to turn to more expensive sources of ferro nickel and nickel cathode."

Encouraged by such expectations nickel producers have continued their production ... Unfortunately, it seems that these stocks of materials aren't spent. Cleaner nickel is being heaped in warehouses around the world, while the world's largest consumer calmly uses its own stock.

This year we have heard many times that more than 50% of producers works at a loss, and that the negative trend can no longer continue. In the meantime the situation has worsened so mucha that we can raise the question of whether anyone at all works at no loss?
What is more interesting, a leading nickel producers still aren't ready to reduce production. According to announcements Vale supposed to close its smelter and nickel refinery in Manitoba this year, but it is now delayed until 2018. Likewise, all hope that Glencore will reduce nickel production is gone.
With this approach we are unlikely to see a deficit of nickel in the global market in the near future. It is like we all expect a miracle to happen.


Can China save the global metal market?

Miracles rarely happen but this time there are serious indications that there could be a new miracle from China, and that will go to China, depending on your point of view. Chinese producers of aluminum and nickel have asked the authorities in Beijing to buy up the surpluses of these metals on the global market. According to unofficial data, China should buy 900,000 tonnes of aluminum and 40,000 tons of nickel for its reserves. The sources have not yet confirmed whether in this package there will also be copper and zinc, but it is unlikely that they will be omitted.

China's State Reserve Bureau (SRB) already had similar reaction. It was in 2009 when it purchased over 50,000 tonnes of nickel at a price of $ 10,000 / t from the world market for its own stock. According to analysts, China had shown confidence in the consumption of their own industry, and had also demonstrated when it is time to buy a large supply of metal. It is hard to expect that someone would admit it, but after that move the value of nickel began to rise.

According to unofficial data, this year the market of nickel will produce a surplus from 10 to 35 thousand tons of nickel. By purchasing 40,000 tons of nickel at this low price China would definitely do a favor to itself and global market. On the other hand, maybe the China's State Reserve Bureau considered that the price could fall even more, and would prefer to wait ...
Basically, the Chinese government has neither confirmed nor rejected the proposal obtained, but definitely got the attention of the whole world.

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