1. Demand-supply mismatch may push Nickel prices to Rs 800/ kg on MCX

Demand-supply mismatch may push Nickel prices to Rs 800/ kg on MCX

The metal used in production of stainless steel, has been the best performer since May 2016 in the entire non-agro commodities spectrum, all thanks to the new government at Philippines.

Published: October 15, 2016 12:02 PM
nickel-reu-l In line with the stern attitude towards mining, the Philippines natural resources ministry started an audit of all mining operations within the country in July and has already halted the operations of 10 mines, eight of them nickel producers. (Reuters)

Nickel, the best performer in 2016 second only to Zinc, has surged by more than 20 per cent in the year till date. The metal used in production of stainless steel, has been the best performer since May 2016 in the entire non-agro commodities spectrum, all thanks to the new government at Philippines.

In June 2016, new Philippine President Rodrigo Duterte elected Regina Lopez, a passionate environmentalist to head the Department of Environment and Natural Resources. Lopez accepted the offer and strictly warned against the use of open pits to extract minerals, thereby threatening to potentially disrupt supplies and limit ore exports. Philippines came in as a substitute, after Indonesia imposed Nickel ore export ban in January 2014. Philippines currently supplies around 24% of the global nickel demand.

In line with the stern attitude towards mining, the Philippines natural resources ministry started an audit of all mining operations within the country in July and has already halted the operations of 10 mines, eight of them nickel producers. At present, at least 12 more mining companies are recommended for suspension as part of the result of the government’s crackdown on miners that ended in August. Small scale miners accounting for 11% of producers have been hardest hit, while the three major miners that account for 40% of the Philippines nickel ore production have met the ISO 14000 environmental standard.

As stainless steel is a core demand driver for nickel, the threat of reduced nickel supply from Philippines and increasing demand from the Chinese steel industry is boosting the metal. On the other side, the demand side from China remains strong for refined nickel as imports in China jumped by 68 percent to 290,000 tonnes in the first eight months of this year.

Recent data from the International Stainless Steel Forum (ISSF) showed Chinese stainless steel output stood at 11.73 million tonnes between January and June, which is up by 7.9 per cent from the first six months of last year. ISSF showed global stainless production rose by 4.1 per cent to 22.1 million tonnes in the first half of this year, compared to drop of 0.3 per cent in 2015.

Besides, China is already changing the form in which it imports the metal much before the anticipated shortage. Chinese imports of ferronickel (intermediate stage product between ore and refined metal) from Indonesia surged to 74,493 tonnes in July 2016, more than five times the amount taken in the same month a year earlier and more than four-fold increase in the year till date imports.

Assessing the current scenario, the International Nickel Study Group (INSG) reports that the global nickel market will be in deficit for year 2016 due to reduction in supply, increased production of the authentic stainless steel grades (which uses more nickel) in all main markets and a sustained positive trend in nickel demand in the aerospace and battery sector.

Overall, Nickel looks very well placed in terms of demand-supply dynamics and is expected to gain momentum further as Indonesia’s mining minister recently said that the country will “almost definitely” keep in place a ban on nickel ore and bauxite exports days.

Taking all the factors into consideration, Nickel prices are likely to gain further in 2016 towards $11800-12000/tonne on the LME (CMP $10405/t) and Rs 780-800/kg on the MCX (CMP Rs.694.6/kg)

(The author is Prathamesh Mallya, senior research analyst, commodities and currencies, Angel Broking)

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