Commodities | Apr 18 2011
– Chinese nickel imports enjoy strong start to 2011
– Nickel pig iron dominating nickel market sentiment
– Barclays sees reasons to stay bullish on the metal
By Chris Shaw
According to Barclays Capital, the Chinese nickel pig iron (NPI) sector is again the dominant factor in determining nickel market sentiment at present.
So far in 2011, Chinese trade data has seen nickel ore imports, which are the main feed for the sector, rise by 67% in year-on-year terms through the end of February. Barclays notes Custom declarations suggest a similar firm result for March.
Barclays has also seen anecdotal statements suggesting Chinese austenitic stainless steel producers have increased their usage of NPI in high nickel content products. This leads Barclays to suggest a portion of the nickel market has turned bearish on the basis NPI production will be higher than anticipated. This has the potential to push the refined nickel market into surplus.
The argument is not this simple though, especially as there is enough evidence to justify retaining a bullish stance on nickel through 2011. Firstly, Barclays notes the nickel market has been in deficit so far in 2011, a trend expected to continue for at least the time being.
As well, Barclays points out LME stocks of nickel have fallen aggressively in the first few months of this year, this thanks to robust demand from the stainless sector as well as constraints on mine supply given disruptions and delays at various projects.
Given tightness in fundamental conditions outside of China, Barclays suggests a deficit market in nickel is achievable even with rising NPI output. This is because the current pace of stainless steel production growth can support demand increases for both NPI and refined nickel.
The other important point offered by Barclays is NPI data ignore the often low ore quality and high moisture content which makes such imports unusable by furnaces. This means import and port stock data for NPI contains some margin of error.
This suggests while NPI production and usage is rising, as long as the refined nickel market remains in deficit there is potential for a short-covering rally in the view of Barclays. This is particularly the case if there is any event that causes the market to re-focus on what remains a tight fundamental picture for nickel.
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
