Nickel prices are expected to recover globally in the second half of the year on declining nickel pig iron production, stronger demand from the European stainless steel market and reduced nickel ore availability, Citi Research said in a report Tuesday, March 10.
China’s NPI production is expected to fall to 377,000 mt this year, from 471,000 mt in 2014, with output already contracting by almost 33% year on year to a little over 30,000 mt (contained nickel) in January, Citi said.
This follows a 29% year-on-year decline in Q4 last year. Cost pressures and environmental issues will likely constrain production, explained Citi.
Chinese NPI and plating-grade nickel prices have been largely trading above London Metal Exchange prices since the beginning of December, and these premiums point to increasing tightness in the domestic nickel market, it noted.
A slowdown in Chinese stainless steel production growth will, however, provide modest headwinds to rising nickel prices.
The slowdown is blamed on possible anti-dumping duties on Chinese cold rolled products in Europe from end-March, it said.
“However, we expect the pullback in NPI production to more than counter the impact of the slowing growth rate in stainless melt production through this year and into 2016,” Citi said.
Meanwhile, there are signs that destocking has ended in the European stainless market with mills’ stainless inventory largely used up.
The possible anti-dumping measures could prompt some consumer restocking, providing some support to nickel prices, according to the report.
The resumption of Philippine nickel ore exports post-monsoon season — likely from March onwards — will add to short-term headwinds, but shipments are unlikely to accelerate this year like last year.
In 2014, a significant quantity that was shipped from the Philippines was drawn from stockpiled ore at mine sites, Citi said.
Support for nickel prices, may also stem from two bills filed in the Philippines last year to ban exports of unprocessed ore.
“With Presidential and Parliamentary elections in 2016, and the mining sector generally unpopular among the electorate in the Philippines, we believe the measures to ban ore exports could become statutes ahead of the 2016 elections, although a 4-5 year grace period before ban enforcement would be expected,” Citi said.
With almost 38% of total global nickel mine capacity struggling to breakeven at current prices, there is little downside scope for prices from current levels, Citi concluded.