SHANGHAI, Aug. 25 (SMM) – On Aug. 23, LME nickel surged to $11,825 per tonne, closer to 2016’s peak of $12,145 per tonne in 2016, and leapt more than 14 per cent so far within the month.
What’re driving factors for the surge?
Positive macro-economic data played an important role. First, the US dollar index slid from 96 to 92.53, and now keeps fluctuating at around 93. Second, China’s GPD grew 6.9% in the second quarter, moving in a stable and sound pace, and Chinese economy has shifted from stabilizing its growth to preventing risks. Third, China’s central bank kept cash net injection into market in July and August, but enterprises still faced difficulties in obtaining loans, with ample liquidity in capital market. The commodity market advanced across the board amid positive macro-economic environment.
On the market fundamentals front, some domestic stainless steel mills have increased using proportion of primary nickel. After State Administration of Taxation’s crackdowns on fake VAT invoice on secondary resources (including stainless steel scrap), the availability of stainless steel scrap is low, growing demand for primary nickel. The crackdowns have come to an end, and market participants now wait for the notice of suggestions on dealing with VAT issues on secondary resources. Trading of scrap materials is largely suspended in China’s market.
Meanwhile, output at domestic stainless steel mills is high due to decent profits. SMM survey finds that orders at mills are full by late August, and margins are high. So, stainless steel output is expected to remain high until September.
Moreover, output increment in nickel market is expected to be limited in the coming 1-2 months, SMM foresees. In China, high-grade NPI will make limited contribution to output increment as it takes time to release output after long-time suspension, in addition to tight liquidity factor. China’s refined nickel output grew in July and August after price gains, but kept falling on a yearly basis, and output in September is estimated to be flat at August’s. In the import market, inbound shipments of refined nickel also dropped on a yearly basis (excluding stockpiling factor in 2016), and imports are hardly to grow significantly in August and September. In Indonesia, NPI output growth is expected to fall below market estimation as friction with local government has disrupted its production. Some refined nickel producers shifted to producing NiSO4.6H2O because of strong demand, also negatively affect refined nickel supply.
In Surigao, the Philippines, bad weather disturbed ore loading operations, and the same factor also negatively affected loading operations in Tawi-Tawi. After Indonesia’s easing of nickel ore export ban, some domestic NPI producers intended to buy Indonesian ore, but ore deliveries from the country may be limited within the year.
Inventories, including stainless steel, refined nickel and nickel ore, are all down.
Stainless steel inventories in Wuxi and Foshan, after falling from March’s high, are now at a low level of around 270,000 tonnes. Refined nickel inventories in Shanghai are also on the decline, and down to about 125,000 tonnes, down by almost 50 per cent on a yearly basis. Nickel ore inventories at China’s total nickel ore port inventories fell below 70,000 mt in Ni content, down as much as 45 per cent over the same period of last year. As domestic NPI producers largely have on-hand raw material inventories sufficient for production until November, the drop in nickel ore inventories so far has small impact on LME nickel.
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