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Nickel shines back again. What are the key factors for surging nickel prices?

Author: Aprit Chandna/Wednesday, July 31, 2019/Categories: Exclusive, Economy

Nickel shines back again. What are the key factors for surging nickel prices?

Nickel prices have surged multi-fold this month. The prices at the London Metal Exchange (LME) hit $15117.50 per tonne. The prices opened the year at $10677.50 and currently trading at around 30% higher than this year's opening level.

The sudden surge in the prices were driven by three factors. One of the key reason for the surging nickel prices was on unfounded fears that Indonesia will ban the export of unprocessed nickel ore in 2022. The second factor was lower level of inventories at LME which hit the lowest level since January 2013.

Thirdly, the overall global nickel market has been in deficit in terms of supply and demand balance. However, the demand sentiment got a major boost after the traders believed that there would be an increased demand for nickel in Electric Vehicles (EVs) application.

Separately, major demand for nickel comes from stainless steel production which consumes around 70% of global nickel production. The recent production data from China suggests that NPI-based stainless steel production in China has risen by 10% so far for the first half of this year. As a result, the demand for nickel increased.

In the recent course of price rise event, Reuters reported that Chinese firm Tsingshan Holding Group has been buying large quantities of nickel on the LME to supplement its own steel output.

Also the supply glitch fear rose at LME as a single entity held 50%-79% of the total warrants of LME nickel.

Looking ahead, high prices could draw out additional inventories of nickel which aren't part of any major bourses. Also nickel stocks at the Shanghai Futures Exchange (SHFE) recently hit a 17-month high of 25,800 tons. Meanwhile, supplies in Indonesia have declined on disruptions at nickel smelter as well as due to natural disasters like floods and landslides. As per the World Bureau of Metal Statstics (WBMS) data, global nickel market witnessed 57,300 tonnes of deficit for the first five months of 2019 and also likely to witness the shortfall in the coming months as major producers like BP are expecting the production to remain flat during 2019-2020. (The author is Fundamental Analyst, Karvy Comtrade)

 

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