(Repeats May 2 column. The opinions expressed here are those of
the author, a columnist for Reuters.)
* China imports from Philippines tmsnrt.rs/2p0SLIM
By Andy Home
LONDON, May 2 Nickel has gone from bull hero to
zero in the space of just a couple of months.
In early March, when London nickel was trading above
$11,000 per tonne, it was the best performer among the major
base metals traded on the London Metal Exchange (LME).
At a current $9,510 per tonne, it is now down 4 percent on
the start of the year and vying with tin for worst performer.
Early exuberance has run aground on the shifting sands of
politics in the Philippines and Indonesia, two suppliers of
nickel raw materials to China's massive stainless steel sector.
What seemed a straightforward narrative of supply shortfall
has become ever problematic in recent weeks.
The International Nickel Study Group (INSG) is still
forecasting a supply-usage deficit this year but it has just
trimmed its expectations and adjusted its deficit calculation
Moreover, even if the INSG's assessment of a 40,000-tonne
production shortfall this year proves correct, there is the not
so little issue of stocks, both in LME warehouses and in China.
Graphic on China's imports of nickel ore from the
The bull narrative for nickel appeared clear cut.
Indonesia, previously the major supplier of nickel ore to
nickel pig iron (NPI) producers in China, had stopped all
shipments at the beginning of 2014.
The Philippines, which emerged to fill the resulting gap,
then generated a second supply shock in the form of eco-warrior
turned environmental minister Regina Lopez.
Lopez ordered the suspension or closure of almost half the
country's mines, many of them nickel producers, on charges of
The impact is already showing in China's trade figures.
Shipments of nickel ore from the Philippines drop over the
October-March rainy season every year but the amount of material
imported in the first quarter of this year, 2.32 million tonnes,
is the lowest since 2012, when the country was still a
second-tier supplier after Indonesia.
However, just when trade flows seem to be confirming
nickel's bull credentials, the narrative is starting to unravel.
Affected nickel producers in the Philippines are fighting
back, both legally and politically, and Lopez' future is far
from certain with a showdown looming in the form of the
firebrand's Senate confirmation hearing on Wednesday.
Events in the Philippines, though, have been overtaken by
those in Indonesia.
Because Indonesia has part reversed its ban on ore shipments
by allowing some producers, first and foremost Aneka Tambang
, to export stocks of nickel ore.
There was a suggestion that shipments had already resumed
but the 300,000 tonnes of Indonesian ore that apparently landed
in China in January and February seems to have been a
misclassification by the Chinese customs authorities.
Not so with the 50,800 tonnes of ore that has just arrived
at the Chinese port of Lianyungang in the province of Jiangsu,
according to local specialist news service Shanghai Metals
Market. The shipment, made by Zhenshi Holding Group, is the
first official arrival of Indonesian ore since the January 2014
ban, according to SMM.
More will come.
Aneka Tambang is sitting on over five million tonnes of
nickel ore and has just applied for an export license for an
additional 3.7 million tonnes over and above the 2.7 million
that have already been approved for export.
Remember that these exports will supplement the ever-growing
amount of nickel pig iron that is now being exported from
Indonesia to China thanks to the build-out of processing
capacity in the country.
That was, after all, the purpose of the original ban, and
the resulting flow of interim product continues to increase,
more than doubling to 232,000 tonnes in the first quarter.
SMALLER DEFICIT, BIG STOCKS
Given such startling shifts and turns in the raw materials
story, pity the statisticians at the INSG who have to try and
weave a coherent overview of what is happening in the nickel
The Group has just issued its latest assessments, tweaking
the production side of the balance sheet higher.
As a result, the supply deficits of 67,000 tonnes and 66,000
tonnes calculated for 2016 and 2017 at the time of its last
meeting in October have been trimmed to 38,000 and 40,000 tonnes
Whichever figure you want to take, these calculated deficits
are small relative to the size of global nickel stocks.
The amount of nickel sitting in the LME warehouse network
currently stands at 379,182 tonnes. Last year's downtrend, which
saw inventory fall by 69,000 tonnes, has dissipated. Indeed, LME
stocks are now up by over 7,000 tonnes on the start of the year.
It is true that those registered with the Shanghai Futures
Exchange have declined by almost 9,600 tonnes to 84,334 tonnes.
But the ebb and flow between London and Shanghai stocks
seems to reflect little more than the shifting arbitrage between
the two markets.
Taken in the round, total visible stocks at a current
463,500 tonnes are largely unchanged on the start of the year.
There may, moreover, be a significant amount of legacy stock
sitting in the statistical shadows beyond the reporting reach of
ALL ABOUT ORE?
Nickel's bull story was all about the supply of ore to China
and hence dependent on a continued Indonesian ban and a mass
shutdown of mining capacity in the Philippines.
With Indonesia now effecting a partial about-turn in export
policy and the state of Philippine play still highly uncertain,
a previously straightforward narrative has become increasingly
But the real problem for nickel bulls may have been the
collective focus on just one strand in the supply chain.
The more collective hopes were pinned on the disruption of
nickel ore as a determinant of future price, the less incentive
anyone else had to trim production during the long price decline
that took place between 2011 and 2016.
Nickel, it turned out, was surprisingly price inelastic and
that, as much as the vagaries of ore supply politics, may yet
turn out to be the real hindrance to higher prices.
Whatever the statistical niceties of this year's
supply-demand balance, the final figure is still going to be
dwarfed by the amount of stocks accumulated over the last few
(Editing by Susan Thomas)