Nickel has ruled the non-agri commodity space so far in 2018, with gains of 16 per cent on the LME and 27 per cent on the MCX — almost equivalent to its upside for the whole of 2017.
The silvery white metal, mainly used in the production of stainless steel, gained further momentum in 2018, driven by rising Chinese imports.
Nickel ore imports by China more than doubled to 6.6 million tonnes in the first quarter of 2018 over a year ago while refined nickel and alloy imports have surged 14 per cent to 60,000 tonnes during the same period. The sharp jump can be attributed to accelerating imports from Indonesia and stable shipments from the Philippines. In fact, Indonesian imports in March at 1.37 million tonnes were the highest monthly total since the ban was imposed in 2014.
A closer look at the import numbers shows ore supplies from Indonesia have been growing fast enough to replace the Philippines as the top supplier to China. On the other hand, Philippines’ President Rodrigo Duterte has been serious about environmental regulations and has issued warnings and limitations to the mining industry.
The highlight for the year, however, has to be sanctions imposed by the US on Russian President Vladimir Putin’s allies, including Russian oligarchs and companies controlled by them as well as government officials. This turned out to be a blessing in disguise for nickel and pushed LME prices to $ 16,690/t and MCX to Rs 1,095.2/kg — both highest since late 2014 — on fears that sanctions could extend to the world’s second-biggest nickel producer, Norilsk Nickel, after inclusion of aluminum giant Rusal in the forbidden list.
Nickel prices are trading near highs touched in April as a consistent fall in inventories at both LME and Shanghai warehouses has been supporting the metal. LME stocks are hovering near four-year low of 3,05,000 tonnes while those of Shanghai are near a 30-month low of 28,900 tonnes.
Supply woes are reinforced by latest numbers from the International Nickel Study Group, which showed that global nickel market deficit widened to 15,700 tonnes in March, from a revised deficit of 6,600 tonnes in the previous month. During the first three months of 2018, the deficit widened to 39,100 tonnes from the earlier 27,100 tonnes.
The only major bottleneck is weakening stainless steel prices on oversupply concerns as two-thirds of nickel demand come from stainless mills. Having said that, nickel prices are still expected to continue their positive momentum as news of mothballing capacity at Vale’s New Caledonia mine — the world’s fourth-largest nickel producer — will buoy the metal alongside falling global stocks and expectations of a widening deficit.
Another positive for nickel is the electric vehicle boom, which took centre-stage and whipped up interest at the recently concluded LME Asia week. Hence, we expect nickel prices to trend higher towards Rs 1,060 per kg mark in the near term. (CMP: Rs 995/kg)
(Kaynat Chainwala is Research Analyst- Base Metals at Angel Broking. Views expressed in this column are her own and do not represent those of ETMarkets.com. Investors should consult their financial advisers before taking any investment calls based on this article)