Thu, 04/23/2009 - 17:42
Guest column: What is behind China's recent nickel price surge?
by Fan Runze
In the latest Interfax metals guest column, Fan Runze, an analyst with Beijing Antaike Information, discusses surging nickel prices on the domestic market and the fundamentals of China's nickel market. Translated from the original Chinese by Ginger Ding.
- Fan Runze, an analyst with Beijing Antaike Information
Shanghai. April 23. INTERFAX-CHINA - Domestic nickel prices have surged from RMB 90,000 ($13,178.12) per ton to almost RMB 130,000 ($19,035.07) per ton, following a recent rally of international nickel prices. Asia's largest nickel producer Jinchuan Group also hiked its ex-works nickel price four times since April 13 to RMB 128,000 ($18,742.22) per ton on April 20, up 40 percent over the week.
It is widely acknowledged that the majority of nickel buyers on the market at present are not downstream users, but speculators. Due to rising nickel prices, traders have become reluctant to rush their sales, while speculative investors have purchased large quantities of Jinchuan nickel, resulting in tightened nickel supply. However, the actual consumption and purchase by downstream users has yet to step up.
After thorough analysis, I believe there are several reasons behind the price increase.
Firstly, when copper prices, the leading indicator of commodity prices, exhibited stable rebounds, nickel on the London Metal Exchange, which had been trading at between $9,000 per ton and $10,000 per ton since the Chinese New Year, followed suit and started to rise at the beginning of April.
Also, the commodities market, including the nickel market, regained some confidence on the back of improved global economic data, in particular, the fact that China's economy may have already bottomed out.
Furthermore, investors anticipated tight domestic nickel supply, as more nickel smelters were believed to have suspended production due to prolonged downbeat nickel prices. It has been speculated that domestic individual investors have nickel stockpiles as high as 50,000 tons on expectation that prices will rise further. Domestic nickel prices were also boosted by speculation that the Chinese government would purchase nickel for strategic reserves.
The global economic downturn has prompted every country to strategically invest in future development, with China being no exception. China may have deliberately raised domestic nickel prices above overseas prices to create an influx of imports because the country's continuing rapid development will require ample metal and energy resources, which it is unable supply itself. Nickel is among the strategic metals that can be applied in the manufacture of heat-resistant parts, which can be used in machinery such as airplane turbine engines.
Whether nickel prices continue in an uptrend in the coming weeks ultimately depends on the recovery of downstream consumption, primarily from stainless steel mills. So far, there is still a long way to go before China's stainless steel market recovers, so investors should not overestimate the future movements of nickel prices.
It is expected that currently high nickel prices will eventually see corrections in line with market fundamentals, as there is an increasing likelihood of a possible market surplus in the coming weeks. The latest refined nickel import figure for the first quarter, which was down 7.72 percent on an annual basis to 32,932 tons, was lower than expected, indicating that the domestic market is not in severe shortage, and that prices may slump once profit-taking investors leave the market.
The above is a personal opinion piece by the author. Its publication in no way implies that Interfax shares the views expressed in the article.
