Mining & Resources

Nickel: The only way is up – but when?

Angela Durrant_FINALIn preparation of the upcoming forecast at the 13th China Nickel Conference, we asked Angela Durrant, Senior Research Analyst – Metals Costs, Wood Mackenzie, about the outlook for nickel and the key issues she will be discussing at the event later this month in Shanghai.

Informa: What are the top 3 factors that Wood Makenzie believe will impact the outlook for Nickel pricing in 2016?

AD: China and its economic outlook are always a major driver of nickel prices – nickel demand is generally viewed as being poor at the moment, particularly with the perceived “slow down” in Chinese growth and its change to a demand driven economy. Any “good news” out of China tends to have a positive impact on all commodities, including nickel. The current elevated levels of nickel stock we believe will be a buffer to any significant price rise this year. Indeed, until these are reduced to more “normal levels” through producer discipline these could have a longer term influence on stemming any significant price rise. Near term one of the biggest drivers of nickel price movement is sentiment. As already mentioned, any good news on the Chinese economy can quickly lead to quite sharp price rises. Overall, we forecast little in the way of upside for the nickel price in 2016 and maintain our forecast at around $8800/t as an average for the year.

Informa: Nickel prices have made a small recovery in recent weeks, what do you believe needs to happen for the market to sustain a recovery?

AD: A sustained recovery in nickel prices will only occur if producer cutbacks continue so that global nickel stocks can be worked down to more acceptable levels. This would provide a greater fundamental justification for prices to move above the $4.00/lb to $4.20/lb range that we are currently forecasting until the end of 2017.

Informa: China announced plans to reduce Nickel smelter production by 20% in 2016. What impact do you see this having on the market going forward?

AD: The 20% reduction in output announced by Jinchuan and other Chinese producers shows that Chinese smelters and refiners are sensibly adjusting their production targets. The impact of these cutbacks, if they are sustained, should slowly help to draw down stocks and ultimately provide support to higher prices by the end of 2017. However, there remains much uncertainty around production levels for NPI and so in reality the announcement of the cuts has had little impact on the market and price outlook in the near term.

Informa: Recently there has been speculation in the press that Shanghai trading is impacting the Nickel market. What are your views on this?

AD: The SHFE was established originally with 10kt nickel metal capacity across its warehousing system in early 2015. At the end of 2015, capacity was advertised as having expanded to 110kt, and metal held in the system now exceeds 85kt. SHFE is therefore acting as a market of last resort running parallel to the LME, and its rapid capacity expansion is merely facilitating the growth in financed metal stock at a time when the market really needs fewer opportunities to do so. Furthermore, it has also been prone to manipulation by speculators who are using nickel as collateral against loans for other purposes, creating the impression of higher physical demand than truly exists. Recent new regulation has curbed such speculation, but clearly this is an area which requires continued monitoring by Chinese authorities.

Informa: You will speaking at the 13th China Nickel Conference, what are the conversations that you are looking forward to having with your peers at the gathering?

AD: I am very much looking forward to the conference and meeting with producers, traders and governments alike. The nickel industry has experienced extremely challenging market conditions over the last few years and I hope to learn about the strategies producers and consumers intend to adopt in order to navigate through this period.

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