Higher nickel ore prices raise NPI production costs by $1000 a ton: Barclays

INDONESIA March 03 2014 11:35 AM

LONDON (Scrap Register): Barclays thinks the sharp increase in nickel ore prices has contributed to just over a $1000 a ton increase in average RKEF NPI production costs.

According to Barclays, the price signals are showing signs of a tightening effect following the reduction in supply of Indonesian nickel ore into the Chinese market.

SMM reported that port ore stocks fell just under 1Mt in the week ended 24 February. From a price effect perspective, SMM also reported that 2% nickel ore prices have now risen 15% since the beginning of the year and are up close to 10% since the Chinese New Year holiday.

Barclays estimates that this has contributed to just over a $1000 a ton increase in average RKEF NPI production costs.

In that context, focus has now turned to whether these increases in ore prices and NPI cost inflation are contributing to higher NPI prices. Figure 2 shows high-grade NPI (10-15% Ni content) have risen just under 5% year-to-date, so there has yet to be a commensurate increase.

“However, in our view, it is interesting that when comparing NPI and refined nickel prices (both Chinese domestic and LME), the differentials between the two normalised for nickel contained have narrowed sharply in recent months,” Barclays added.

The LME-NPI differential has fallen from $3000/t in February 2013 to close to $100/t currently, while Chinese refined (Huatong)-NPI differential has narrowed from $5000/t a year ago to $2000/t currently.

These trends are very important because we expect rising ore prices to be sustained and contribute to rising NPI prices; as these differentials narrow, this should bolster import demand and, in turn, have a tightening effect on the ex-China market balance, Barclays concluded.