LONDON, July 15 (Reuters) – Prospects for tighter nickel supplies may have put a floor under prices but any real recovery will need Chinese stainless steel mills to step up their orders and global stockpiles to fall.
Benchmark nickel on the London Metal Exchange fell to six-year lows of $10,430 a tonne last week on worries about demand, particularly after a tumble in Chinese equities.
Prices have climbed back to around $11,500 yet remain at just half the $21,625 hit in May 2014 after Indonesia banned nickel ore exports.
The sell-off that followed that peak was triggered by suppliers in the Philippines who moved to supply ore to Chinese smelters, which produce nickel pig iron, a cheaper alternative to refined nickel that costs around $15,000 a tonne to make.
Chinese nickel pig-iron producers are losing money and have cut output. Analysts estimate China’s nickel pig-iron production fell about 25 percent year on year between January and May to below 170,000 tonnes.
“With Chinese nickel pig iron production falling sharply you are seeing the market gradually move into balance, possibly into deficit,” said Jim Lennon, a senior commodities consultant at Macquarie.
The market saw a 3,400 tonne deficit in April while a March surplus of 100 tonnes was revised to a 4,400 tonne deficit, the International Nickel Study Group said in June.
“The biggest problem for nickel is the overhang of stock. There’s LME stocks and you’ve probably got about 300,000 tonnes elsewhere,” Lennon said.
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