Market optimism to prop up nickel in short term

SHANGHAI, Jul 19 (SMM) – Nickel prices are expected to remain firm in the short term, as low inventories and tight supplies of deliverable goods keep speculative longs dominant, and as the industrial chain from raw materials to stainless steel follow suit.

The most active October nickel contract on the Shanghai Futures Exchange remained robust on Friday morning, hitting a 13-month high of 119,240 yuan/mt. This kept it on the course for an eight-day winning streak.

Three-month nickel on the London Metal Exchange on Thursday also extended its rally, breaking the $15,000/mt level and rising for a 12th straight day to a year-high.

Nickel inventories across LME warehouses almost halved from May 2018 to stand at 148,200 mt as of July 18, data from the bourse showed.

This strong showing grew concerns among some investors that the rally had entered unstable territory. SMM believes that the optimism across the industrial chain, spurred by the nickel rally, will shore up the market in the short run.

A recent hike in purchasing prices of ferronickel and procurement volumes of spot nickel by major Chinese stainless steel mills grew momentum in nickel prices.

Prices of nickel ore also climbed, boosted by higher sea freight and nickel prices. SMM learned that high-grade nickel ore with Ni 1.8% traded at $49-50.5/wmt on a cif basis this week, up some $0.5/wmt from last week.

Stainless steel producers and traders  continued to raise their quotes, with Taiyuan Steel having increased its offers for the Wuxi market by 200 yuan/mt for four consecutive days as of Thursday July 18.

Drivers of the nickel bull run also include weaker-than-expected output cuts by stainless steel mills, tight supplies of ferronickel as well as Indonesia’s potential ban on raw ore exports. Earthquakes in Indonesia and mining audit in the Philippines also briefly buoyed the market.

Growing production of nickel pig iron, however, remains a headwind against nickel prices. Capacity ramp-up has turned the NPI market from a deficit to a tight balance in June-July. SMM data showed that China’s production of NPI expanded 3.44% from May to stand at 49,500 mt in Ni content in June.