(Reuters) – The knives are out for nickel.
Analysts at some of the biggest commodity banks have been slashing their price forecasts for the stainless steel input over the last few days amid a welter of negative comment.
“We now see little prospect of a sustainable nickel price or stainless stocking upturn ahead of the July/August holiday period,” Citi said.
“Fundamentals of this small, high-value metal market are subdued for now: global inventories are high/rising (+25 percent of global supply); regional premia are soft; stainless steel prices are in decline,” Morgan Stanley chimed in.
JPMorgan is “more comfortable with $10,000 nickel” than it is with prices at $17,000 a tonne. Ouch!
In part, this collective price downgrade is a simple reflection of nickel’s underperformance so far this year. At a current $12,900 per tonne, three-month metal on the London Metal Exchange (LME) is down 13 percent since the start of January.
But it is also symptomatic of a reassessment of the bullish supply story that has been bubbling away in the nickel market since Indonesia banned nickel ore exports at the start of 2014, at a stroke cutting the raw materials supply line to China’s massive nickel pig iron sector.
Ironically, there is accumulating evidence of supply-side tensions in the form of falling LME stocks and increased appetite for nickel units from China.
Neither, however, is sufficiently clear-cut a signal to assuage analyst fears about a deteriorating demand side of the equation.
LME STOCKS DOWN…It was the relentless rise in LME nickel stocks MNISTX-TOTAL that killed off nickel’s premature rally last year.
And it has been the continued accumulation of metal in LME warehouses that has damped any bullish exuberance this year.
But that inexorable uptrend seems to have lost momentum, for now at least, with headline stocks peaking at 470,376 tonnes early this month and since retreating to a current 459,438 tonnes.
The amount of metal earmarked for physical delivery in the LME’s cancelled-tonnage category, meanwhile, has risen to over 31 percent.
All grist to the bullish mill, you might think. Particularly since LME stock levels have been hard-wired into funds’ positioning in nickel, according to David Wilson, analyst at Citi.
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