Deficit outlook fuels nickel’s climb to 6-month peak

LONDON — Nickel prices climbed to a six-month peak on Monday as expectations of a fourth consecutive year of supply deficit were reinforced by signs of robust demand from stainless steel mills in China.

Benchmark nickel on the London Metal Exchange (LME) ended 0.5% up at $13,255 a ton, having touched its highest since the end of August at $13,485. The price has risen 24% so far this year, the best performer among LME metals.

“Ultimately the nickel market has been in deficit for three years running and we are expecting another deficit this year,” said Roskill senior analyst Olivier Masson. “The nickel price was probably oversold at the end of last year, when the market was worrying about global trade.”

The trade dispute between China and the US has fueled concern about global growth and demand, undermining sentiment in metals markets.

Data from the International Nickel Study Group shows the nickel market deficit at 46,000 tons in 2016, 115,000 tons in 2017 and 127,000 tons last year.

Global nickel demand is estimated at about 2.4 million tons this year. Of that, about two thirds is destined for stainless steel mills, mostly in China.

“The price of stainless steel continues to rise (and) supply of ferronickel is very tight,” GF Futures said in a note, adding that Wuxi Stainless Steel Exchange inventories had risen by more than 10,000 tons, or 4.2%, since the first half of February.

Nickel stocks at 196,542 in LME-registered warehouses have nearly halved since the start of January last year, while canceled warrants — metal earmarked for delivery — stand at 37%.

Inventories in warehouses monitored by the Shanghai Futures Exchange are below 10,000 tons and have fallen nearly 40% since the middle of November.

Traders say the discount for the cash over the three-month contract is an incentive to buy nickel and sell it forward on the LME. The discount, or contango, of about $80 a ton is enough to cover financing costs and leave a healthy profit.

“The weaker macro numbers we are getting, especially out of China, suggest that negative demand influences will… kick in and start to replenish stockpiles,” said INTL FCStone analyst Edward Meir.

Prices of copper are down on profit taking by funds with long positions betting on higher prices.

Traders say the market has been long on copper for some time. Others say the premium for the cash over the three-month contract at $34 a ton should attract metal to LME warrant, relieving some of the tightness.

LME copper was down 1.1% at $6,409 a ton; aluminum fell 2.2% to $1,875.50; zinc slipped 1.2% to $2,751; lead ceded 1.4% to $2,113; and tin dipped 0.8% to $21,450. —