Nickel touched a near one-year low of $8,700 per tonne on the London Metal Exchange (LME) last week.
It has recovered a little to $8,900 this morning but that still makes it by some margin the worst performer among the major LME-traded industrial metals with a year-to-date decline of over 10 percent.
And, if you believe Goldman Sachs, the stainless steel ingredient is going to stay at these bombed-out levels for a good while.
The Wall Street heavyweight has just downgraded its three-month, six-month and 12-month price forecasts to $9,000-per tonne from $12,500, $11,000 and $11,000 respectively.
“We now expect that nickel prices will remain trading at very low levels through 2017 and much of 2018 until a substantial supply response both in China and outside of China eradicates our forecast surplus of 37,000 tonnes in 2017 and circa 100,000 tonnes in 2018,” according to Goldman (“Nickel: Low prices required”, May 29, 2017).
This marks the collapse of nickel’s previous bull narrative of mass mine closures in the Philippines.
BULL NARRATIVE IMPLODES
As recently as March, LME three-month nickel was on a bull roll, trading above the $11,000 level.
The market’s exuberance was down to one woman, Regina Lopez, eco-warrior turned environmental minister in the Philippines.
She put just about every single nickel miner in the country on notice of closure, threatening the removal of around eight percent of global supply and a termination of the flow of ore to China’s giant nickel pig iron (NPI) sector.
And then at the start of last month she was gone, having failed to win endorsement from the government’s Commission on Appointments.
Some smaller mines remain suspended. But most look set to continue operating with Lopez’ replacement, former military chief Roy Cimatu, immediately adopting a more conciliatory stance.
Philippines nickel production fell hard, by 36 percent in the first quarter of this year, according to the International Nickel Study Group (INSG).
But that was as much down to a particularly heavy monsoon season as to environmental closures.
Similarly with shipments of nickel ore to China.
After slumping by 20 percent to 2.3 million tonnes in the first quarter of this year, China’s imports from the Philippines jumped to 1.69 million tonnes in April.
Compounding bulls’ misery is the near simultaneous resumption of nickel ore flows from Indonesia.
It was Indonesia’s ban on the export of unprocessed ores at the start of 2014 that caused Philippine nickel supply to surge in compensation.
A part political U-turn of that policy will see significant stocks shipped out of the country.
LONG AND ROCKY ROAD
None of which bodes particularly well for a return of bullish exuberance to this market any time soon.
The underlying issue remains the same now as it was back in 2015-2016, the last time the London price traded consistently below the $10,000-per tonne level.
This is a supply chain that is still living with the consequences of nickel’s extraordinary bull run to over $50,000 in 2006 and 2007.
It didn’t stay there long but that price explosion caused the creation of a whole new supply stream. China’s nickel pig iron production was a direct reaction to super-high refined metal prices.
The rest of the world’s producers have been wishing it away ever since.
First Indonesia with its export ban and then the Philippines with Ms Lopez offered the tantalizing potential of NPI output collapsing due to want of feed.
But it has not happened and it looks an increasingly remote prospect.
Which means nickel producers are back to square one, a last-man-standing fight for survival. On previous form, it’s going to be a long battle.