Stainless surge revives nickel market, but surplus still
looms
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[August 11, 2020] By
Pratima Desai
LONDON (Reuters) - Rapidly rising stainless
steel production in top consumer China has helped to preserve demand and
prices of key ingredient nickel, but analysts still expect a supply
overhang of the metal valued for its anti-corrosive properties.
Benchmark nickel prices <CMNI3> on the London Metal Exchange (LME) are
near their highest in more than seven months at around $14,300 a tonne
and up more than 30% since touching a 14-month low of $10,865 in March.
COVID-19 lockdowns and stalled manufacturing activity had led analysts
to expect a large drop in production of stainless steel, accounting for
about 70% of global nickel demand estimated at about 2.35 million tonnes
this year.
But vast amounts of fiscal and monetary stimulus in China have fuelled a
surge in economic activity, particularly in the infrastructure and
construction industries, major consumers of stainless steel.
Graphic: Stainless and nickel prices
in Shanghai
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gfx/ce/ygdvzdgxovw/
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%20nickel%20prices%20in%20Shanghai.PNG
Macquarie analyst Jim Lennon estimates that Chinese mills produced 2.875
million tonnes of stainless steel in July, up 4.8% year on year.
"More importantly for nickel, the high-nickel containing 300-series
grades of stainless saw growth of 17.5% year on year in July to 1.46
million tonnes, an all-time high," Lennon said.
"But we're still likely to see a surplus around 100,000 tonnes. Demand
is better, but supply is better, too, mostly because of China and
Indonesia."
Graphic: China Indonesia primary nickel production
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gfx/ce/qmyvmkrjwvr/
China%20indonesia
%20primary%20nickel%20production.PNG
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Men work on transporting nickel laterite ore on a truck at Ganyu
port in Lianyungang, Jiangsu province, China June 11, 2019.
REUTERS/Stringer
Traders say much of nickel's gains are due to bets on higher prices, as can be
seen in open interest for the LME's nickel contracts <MNI-OI-TOT>.
Graphic: Nickel price and LME open interest
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gfx/ce/gjnvwxommpw/
LMI%20nickel
%20price%20and%20open%20interest.PNG
This is partly speculative and based on Tesla <TSLA.O> boss Elon Musk urging
miners to produce more nickel "in an environmentally sensitive way".
Analysts say that most of the stainless steel produced is being consumed and
that inventories in China are falling.
"The nickel market is probably where you get the starkest comparison between
China and rest of the world in terms of economic growth and demand," said Citi
analyst Oliver Nugent.
Citi expects the nickel market to be oversupplied by 135,000 tonnes this year
and 117,000 tonnes in 2021.
"In the base metals complex, nickel looks the most expensive compared to
production costs," Citi's Nugent said.
Graphic: Nickel market balance
https://fingfx.thomsonreuters.com/
gfx/ce/yxmvjrwjyvr/Nickel
%20market%20balance.PNG
(Reporting by Pratima Desai; Editing by David Goodman)
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