Ex - Analyst at PE and Indonesia Brokerage Firm

Surabhi Chopra

Thematic (Sector/Industry)

Denmark Materials / Thematic (Sector/Industry)

Nickel prices to correct. We recommend to take profit as we expect the nickel prices to correct by 7-13% from here to US$8,500-8,000/ton or US$3.6-3.8/lb. LME Nickel prices are currently hovering at about US$9,189/share (Or US$4.17/lb), while nickel inventory is at one of the highest ever at about 390,000 ton which account for about 20% of global nickel consumption estimated at about 2 million tonnes this year. While ~75% of the mines remain unprofitable at the current price, we believe that the high nickel inventory as well as we see slowing demand for stainless steel from China will drag down the prices further. Moreover, from Indonesia the production is expected to increase by about 5.2 million tons of nickel ore or equivalent of ~70,000 tons of ferronickel as government lifts the export ban. On the flip side, the closure of Philippines mines due to environmental reasons could cut the supply of refined nickel by about 50% of the Philippines’ overall nickel output of 530,000 (2016) which implies about 10% (265,000) of the global output of ~2,100,000 tons. We believe the net supply cut will be offset by the falling demand. The upside risk to our call is that expectation of higher spending for US infrastructure will help to contribute to higher nickel demand. Indonesia’s Energy and Mineral Resources Minister stated that the country produces 10 million tons of low-grade ore annually and that 5.2 million tons of ore (~70,000 tons of Ni) would be available for export after factoring for needed domestic processing capacity. Our calculation is premised upon that companies extracts about one ton of nickel contained in ferronickel from 70-80 tons of nickel ore, implying average nickel content in one ton of nickel ore of 1.25-1.43%. Stainless steel forms 69% of total nickel consumption in the world and China is the world's largest producer of stainless steel.  Reasons for slower stainless steel production in China. The main drivers of slower stainless steel production growth are : 1) Chinese government's tougher stance on excess stainless steel capacity and continuing obstacles for Chinese exports, 2) Beijing’s curbs on real estate expansion, and 3) stricter environmental regulations will also hamper increases in Chinese stainless steel production.

Nickel prices to correct. We recommend to take profit as we expect the nickel prices to correct by 7-13% from here to US$8,500-8,000/ton or US$3.6-3.8/lb. LME Nickel prices are currently hovering at about US$9,189/share (Or US$4.17/lb), while nickel inventory is at one of the highest ever at about 390,000 ton which account for about 20% of global nickel consumption estimated at about 2 million tonnes this year. While ~75% of the mines remain unprofitable at the current price, we believe that the high nickel inventory as well as we see slowing demand for stainless steel from China will drag down the prices further. Moreover, from Indonesia the production is expected to increase by about 5.2 million tons of nickel ore or equivalent of ~70,000 tons of ferronickel as government lifts the export ban. On the flip side, the closure of Philippines mines due to environmental reasons could cut the supply of refined nickel by about 50% of the Philippines’ overall nickel output of 530,000 (2016) which implies about 10% (265,000) of the global output of ~2,100,000 tons. We believe the net supply cut will be offset by the falling demand. The upside risk to our call is that expectation of higher spending for US infrastructure will help to contribute to higher nickel demand. Indonesia’s Energy and Mineral Resources Minister stated that the country produces 10 million tons of low-grade ore annually and that 5.2 million tons of ore (~70,000 tons of Ni) would be available for export after factoring for needed domestic processing capacity. Our calculation is premised upon that companies extracts about one ton of nickel contained in ferronickel from 70-80 tons of nickel ore, implying average nickel content in one ton of nickel ore of 1.25-1.43%. Stainless steel forms 69% of total nickel consumption in the world and China is the world's largest producer of stainless steel.  Reasons for slower stainless steel production in China. The main drivers of slower stainless steel production growth are : 1) Chinese government's tougher stance on excess stainless steel capacity and continuing obstacles for Chinese exports, 2) Beijing’s curbs on real estate expansion, and 3) stricter environmental regulations will also hamper increases in Chinese stainless steel production. 

Nickel Prices to Correct by 7-13%, Take Profits