Nickel Continues To Rebound As Analysts Remain Hopeful For Bull Market

By @chelean on
A worker poses with a handful of nickel ore at the nickel mining factory of PT Vale Tbk, near Sorowako, Indonesia's Sulawesi island, January 8, 2014.
IN PHOTO: A worker poses with a handful of nickel ore at the nickel mining factory of PT Vale Tbk, near Sorowako, Indonesia's Sulawesi island, January 8, 2014. Indonesia's ban on exports of key mineral ores - unless they are processed in the country - risks backfiring as weaker commodity prices mean it is not cost-effective to invest in expensive smelters and refineries. Picture taken January 8, 2014. REUTERS/Yusuf Ahmad

Despite sliding slightly in the past two days, nickel remains a major player in the commodities market after China cut interest rates for the third time in six months following a decrease in the nation's imports and exports. The metal climbed as much as 2.4 percent last week before falling by 1.5 percent this week.

"China's rate cut could further support sentiment for industrial metals," analyst Natalie Rampono from Australia and New Zealand Banking Group, Ltd. wrote in a note on Monday. There are speculations that nickel prices may extend gains because of new rules limiting the origin of nickel allowed for delivery in China's new futures contract, prompting sellers to seek supplies to meet China's requirements. The Shanghai Futures Exchange is also seeking to allow the delivery of foreign-made nickel, including supplies from Russian miner Norilsk Nickel.

There are also rumours that the Indonesian ore ban enacted in early 2014 is finally starting to affect China's massive nickel pig iron sector, or NPI, as the country's ore stockpiles are slowly being depleted. Some analysts estimate that the Chinese should run out of Indonesian stockpiles by June of this year.

According to Celia Wang, an analyst from Beijing Antaike Information Development Co., current Chinese stocks of nickel ore, refined nickel and ferronickel can only cover three months of the country's stainless steel production. She forecasts that Chinese NPI production would be restricted to 360,000 tonnes this year, down from about 484,000 tonnes before the Indonesian ban.

But despite the economic slowdown, the Chinese would need more stainless steel in the coming years, as evidenced by the rising trend of China's primary nickel consumption since 2006. In fact, China bought more than half of the world's total nickel supply in 2014. Chinese use stainless steel for domestic needs, and the great migration from the countryside to cities is expected to only fuel this trend in the future.

But while the ore ban left a huge void in nickel mining, nickel production outside China has already recovered and is also growing, thanks to mega projects that were initiated when the commodity super-cycle was still in full swing. An example of this is Amur Minerals Corporation (LSE:AMC), which is awaiting the approval of Russian Prime Minister Dmitry Medvedev for its production license. Its flagship Kun-Manie project has an estimated nickel content of 67 million tonnes, making it one of the top 20 largest nickel deposits in the world. Amur Minerals is also a potential nickel exporter to China by virtue of proximity, since the Kun-Manie project is operating in the Amur region of the Russian Far East, an area close to the Chinese border.

Meanwhile, other industrial metals were also positively affected by the China's rate cut. Copper in London rose by 0.4 percent, together with tin, which is said the second worst performer in the year so far. Aluminium, lead and zinc also rose on the London Metals Exchange.

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