Nickel prices poised for a rebound – by Biman Mukherji (Wall Street Journal – March 9, 2015)

PRICES of nickel hit their lowest levels in more than a year last week, suggesting it is just another metal suffering from weaker Chinese demand growth and a strong dollar.

But many traders and analysts think the long decline in nickel’s price is reaching an end, as China’s drive to produce more of a substitute product — nickel pig iron — shows signs of cracking. NPI is commonly used in China as a cheaper alternative to pure nickel for producing stainless steel.

China’s burgeoning output and usage of NPI has meant that the world has had plenty of spare pure nickel. That has put pressure on prices for the commodity: the benchmark three-month nickel futures contract on the London Metal Exchange is down around 30 per cent in the past year.

For more than a year, Chinese producers of nickel pig iron have countered an export ban on the nickel ore they need from their largest supplier, Indonesia, by drawing upon stockpiles of the ore they built up just before the ban was imposed in early 2014. But now China’s stockpile of nickel ore is running short: stocks in five of the country’s main ports have halved within one year, according to Commerzbank.

As the ore hoard runs down, Chinese stainless-steel producers will likely have to import more pure nickel, putting upward pressure on prices.

Moreover, tougher anti-pollution laws in China are forcing low-grade NPI producers to close. Some NPI producers have already shut down because low prices have made them economically unviable. In total, China’s NPI production could fall by as much as 12 per cent this year, Commerzbank forecasts.

Factor in an expected rise in global stainless-steel production — Commerzbank reckons output will grow by 5 per cent — and the conditions for a resurgence in nickel prices look to be in place.

A rally would make nickel stand out in a depressed picture for global metals. Iron ore has continued its slide this year to multimonth lows, while copper and aluminium prices remain in the doldrums.

The price of nickel futures on the London Metal Exchange, which touched its lowest level in more than a year, at $US13,610 a tonne, in intraday trading Wednesday, rebounded to $US14,370 Friday on increased talk about NPI smelter closures.

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