Aug 09, 2019
Nickel Prices Continue to surge
4 MIN READ
Nickel — the metal that made Sudbury — has been enjoying a good run lately.
On Thursday, nickel prices rose more than 7 per cent to a 16-month high as fears rippled through the market that major supplier Indonesia could bring forward a ban on exports of nickel ore, Reuters reported.
Other industrial metals also gained after strong Chinese export data suggested that demand in the world’s largest metals consumer might hold up better than expected.
Benchmark nickel on the London Metal Exchange (LME) at one stage shot up more than 12 per cent to $16,690 a tonne, equalling an April 2018 high, before retreating to close at $15,880, up 7.2 per cent.
The most-traded nickel contract on the Shanghai Futures Exchange (ShFE) climbed 6 per cent to a record high of 124,890 yuan ($17,732.50) a tonne.
The metal used in stainless steel is up around 50 per cent this year on the LME.
Put another way, the price of nickel topped more than US$7 a pound this week, finishing Thursday at $7.0822. There have been times in the past two years when nickel prices had threatened to fall to below $4 a pound.
Nickel, of course, is the key metal mined in Sudbury and strong prices should bode well for Vale and Glencore operations in this area. Vale and Glencore are major employers in Sudbury, with more than 5,000 workers combined.
In a report Thursday, Bloomberg noted nickel has long had a reputation for being among the most volatile industrial metals, but its biggest daily jump in a decade has left even the most seasoned traders astonished.
The metal surged as much as 13 per cent, or almost $2,000 a ton, extending a rally over the past month triggered by speculation that top producer Indonesia might bring forward a ban on nickel ore exports. While the price eased after the nation’s mining ministry denied that any policy changes are imminent, it closed 7.2 per cent higher in London to the highest in more than four years.
“You can see that the market is barely trading now because people just don’t know what to do,” George Daniel, a hedge fund manager at Red Kite who’s been trading metals since 1993, told Bloomberg. “It could come off from here, but everyone’s just waiting to see if China comes in and buys it again.”
Nickel has in recent years become one of the most actively traded contracts on the London Metal Exchange as short-term investors have been drawn to its sharp price moves. Trend-following funds have added fuel to the recent rally, as have options traders who were forced to hedge their exposure as prices started surging late Wednesday, Daniel said.
Nickel is by far the best-performing base metal this year, with most other contracts declining, Bloomberg said. It has benefited from dwindling global stockpiles, long-term prospects for a demand boost from its use in electric-vehicle batteries, as well as concerns that Indonesia could curb supplies.
The Asian nation is the world’s top source of mined nickel, most of which goes to China, and its policies to restrict raw materials are closely watched by investors. The government said it will revoke export permits of companies failing to meet smelter construction targets set out by the ministry.
The upward price momentum was driven by uncertainty over Indonesia’s plans to ban ore exports and the potential for a renewed stoppage to create shortfalls in China, said ING analyst Wenyu Yao.
Indonesia’s ban on ore exports was relaxed in 2017 for a period of five years. It remains unclear if the government will reintroduce it earlier than that. An Indonesian official told Reuters on Thursday that this remained “uncertain,” and Indonesia’s nickel miners association said the group has “indirect” knowledge of a plan to bring forward the date of enforcement.
Nickel could fall around $2,000 if the ban is not announced over the next few months or rally $2,000 if a ban is announced, analysts at Citi said.
The discount for cash nickel against three-month metal on the LME has shrunk to $7 a tonne from about $80 in June, pointing to lower nearby supply. Stocks of nickel in LME-registered warehouses have fallen to some 140,000 tonnes from around 370,000 tonnes at the start of 2018, the lowest level since 2013. One dominant holder controls between 50 per cent and 79 per cent of warrants
Exports from China unexpectedly returned to growth in July on improved global demand, but the rebound could be short-lived as Washington prepares more tariffs on Chinese goods.
China’s commodities imports surged in July, with unwrought copper imports bouncing back after two months of declines and copper concentrate imports hitting a record high.
Some analysts warned the rising price of nickel may not last. Technical price movements can be explained by “irrationality,” Nicky Shiels, an analyst at Bank of Nova Scotia, told Bloomberg in an email Thursday. The fundamentals, meanwhile, have taken a back seat. Shanghai futures’ volume surge amid steady LME trading indicates “speculative interest is in panic mode,” she said.