Nickel, the silvery white metal, used mainly in the production of stainless steel, turned 1.59 per cent higher in 2016 on a year-to-date basis after being the worst performer in 2015. The metal started the year at $8800 per tonne and touched levels as high as $9540 per tonne in April’16 mainly supported by falling Philippine ore capacity in the first four months.

Falling Chinese demand was the main culprit for Nickel’s doom in 2015, which hurt in the first quarter of 2016 as well before gaining sharply in May’16.

In Q12016, imports were 4.16 million metric tonnes, a 38 per cent decline compared to the same period last year. But China’s nickel ore imports from the Philippines rose to 3 million tonnes in May, the highest level in seven months, taking care of 97 per cent of the country’s total purchases. As a result, Chinese Nickel Ore imports for the first five months of 2016 totaled 7.16 million metric tons.

Back in Dec’15, eleven Chinese high-grade nickel pig iron (NPI) producers reduced their 2016 production plans by 20 per cent, in an effort to boost prices after the metal plunged to its lowest in 12 years. However, it was unable to do the needful as Tsinghan group’s Indonesian NPI smelter has been able to produce 80,000 tonnes per month since April 2016, all of which was delivered to Tsingshan’s own stainless steel mill in China, fading away any positive effect of cut by Chinese NPI producers.

Meanwhile, stock situation, has not been comfortable as Shanghai Futures Exchange stocks rose to over 93,000 mt till date in 2016 from just 3,000 mt this time last year. Although LME inventories, which account for 20 per cent of the market, are down by 13.5 percent till date, it’s still near historic highs of 400,000 mt.

The International Nickel Study Group (INSG) in its June report said global refined nickel market deficit widened to 10,100 tonnes in April from a month earlier. The group has forecast the global zinc market to slip into deficit of 43,000 tonnes in 2016 compared to a surplus of 93,000 tonnes in 2015. Production is expected to fall to 1.91 mt mainly due to shortage of Nickel ore from the Philippines while demand is forecasted to rise to 1.96 mt in 2016.

Currently, Nickel is trading on the higher side around $9,300 levels as new Philippine Government elected incoming minister in charge of Philippine mining is completely against the use of open pits to extract minerals, thereby threatening to potentially disrupt supplies and limit ore exports. Regina Lopez, a passionate environmentalist, accepted President-elect Rodrigo Duterte’s offer to head the Department of Environment and Natural Resources.

This could be a big blow to China as Philippines is its biggest nickel ore supplier, shipping 34.3 million tonnes last year. Philippine’s top nickel ore producer, Nickel Asia Corp, is among those using the open-pit method. So, it is likely to come under radar, as the incoming minister condemned even considering the method in the resource-rich country because of the environmental impact.

As a result of this new development, Nickel prices are likely to see light in 2016 after being the worst performer in 2015 and may move higher towards $10,200 per tonne on the LME and Rs 670 per kg on the MCX.

(The author is associate director, commodities & currencies business, equity research & advisory at Angel Broking)