Nickel Market Analysis When does the nickel price rally come? Kunihiko Mizuno, Nickel trader
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Corporate profile Sumitomo Corporation Headquarter : Tokyo Japan Foundation : 24 th Dec 1919 Staffs : Approx 75, people Turnover : JPY 8,597 Bil Main Activity : Steel Product, Mineral resources, Infrastructure, Transportation etc Nickel Trading Nickel cathode, Nickel briquette, FeNi, Nickel salt etc covered from Tokyo, Shanghai, Taipei, London, Johannesburg, Denver Investment in Ambatovy project in Madagascar
Agenda Topic : When does Nickel price rally come? Historical Price Data NPI Production Production cost LME Stock development Slowing Demand in China? Analysis with future prices Conclusion
History of Nickel History of Nickel 1751 Mr Axel Fredrik Cronstedt succeeded the isolation of Nickel 1856 Nickel ore body was discovered in Canada 1885 Nickel steel armor plate was produced commercially in France 1912 Krupp invented Nickel containing Stainless steel 1979 LME contract were introduced Chart 1: Historical Nickel Price Unit:USD/lb 3 25 2 15 1 5 19 191 192 193 194 195 196 197 198 199 2 21
NPI Production Chart 2: Ore import since 213 Unit: K WMT 9, 8, 7, 6, 5, 4, 3, 2, 1, - Indonesia Philippine Others Chart 3: Ore Stockpile at Major 9 Ports in China Unit: K WMT 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, - Jan 214 In 214 Jan-Mar Indonesia government banned to export nickel ore (Indonesian ore were imported more than usual beforehand) Chinese NPI producer blended Indonesian and Philippine Due to rainy season, Philippine ore import drops
NPI Production Chart 4: NPI Production Unit:KMT 5 9%~15% 4%~8% 1.5~2.% 4 3 Chart 5: NPI Production Forecast in China and Indonesia Unit:KMT 6 Indonesia China 5 4 3 2 2 1 1-28 21 212 214 216 218 Not only because of difficulty to get nickel ore with good quality, but also due to low margin for NPI producers and environmental issues. Decrease from 214 towards approx 3 kton-ni in China Gradually increase in Indonesia but takes time to ramp up
Production Cost and Margin Chart 6: Production Cost (7%tile) Unit:USD/MT 5, 4, 3, 2, 1, Chart 7: Relation of World Stock and Margin(7% tile) 25% 2% 15% 1% 5% R² =.5687 26 27 28 29 21 211 212 213 214 % 5. 7. 9. 11. 13. 15. 17. 19. -5% World stock Unit:days Current price is around the production cost of 7 percentile's. The margin is expected to be better with forecast of shortage in 216-17.
Production Cost and Margin Chart 6: Production Cost (7%tile) 5, Unit:USD/MT Chart 7: Relation of World Stock and Margin(7% tile) 25% 4, 2% 3, 15% 1% 2, 1, 5% 217 216 215 % 5. 7. 9. 11. 13. 15. 17. 19. -5% World stock Unit:days Current price is around the production cost of 7 percentile's. The margin is expected to be better with forecast of shortage in 216-17.
LME Price& Stock Developments Chart 8: LME Price and LME stock Chart 9: Relation of LME Stock and Price Unit:USD/MT 6, Unit:MT 5 Unit:USD/MT 6, 5, 4, 3, 2, 45 4 35 3 25 2 15 5, 4, 3, 2, 26 27 28 29 21 211 212 213 214 215 1, 1 5 1, R² =.5963. 2. 4. 6. 8. 1. Unit:days LME stock LME stock stays at the highest level After the announcement of Indonesian ban, price surged but short-lived
Jul-1 Nov-1 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Chinese demand slow? Chart 1: Change in Stainless Steel Production Unit : K ton 8 7 6 5 4 3 2 1 Chart 11: Housing price in 1 cities Unit: RMB/m 2 11,5 11, 1,5 1, 9,5 9, 214 ( vs 213) 215 (vs 214) 8,5 Not only giant Stainless steel mills but smaller ones increased in 214Q1 Tsingshan expands while the others cut production in 215Q1 Anti-damping tax by EU committee will be burden for Chinese Stainless Steel Housing price is falling after the peak in Mar 214
Chinese demand slow? Chart 12: Change in Stainless Steel Production Unit: K MT 1. Demand Expectation for 215 8. 6. 4. Chart 13: Comparison of the Each Factors Unit: K MT/month 4 NPI production Other Production Metal Import FeNi Import Metal Export 3 2 2. 1. -2. -4. Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Domestic Outoput Import Export Apprent -1 214 Ave 215 Q1 Apparent consumption is weaker in 215 Q1 than 214 Q1 It s at the same level of 214 (even though Ni was exported a lot in 214 after the Scandal) FeNi import is up while Metal import is down (total import is at almost same level)
Complicated Structure in Nickel Industry <Nickel> <Copper> MeNi NOS FeNi NPI STS Others MeCu Cable Others A lot of option as Ni, to produce STS Depends on the Ni price, 3 series is replaced by 2, 4 series etc. The other factors have also significant impact on Nickel/STS demand (ex. Oil price fall has negative impact on the STS demand from OTCG while it has positive impact on Automotive )
Overall indicator Future prices LME contracts Forward contract in LME out to 63 months forward Each month has each price Backwardation appears when Market is tight Chart 14: Sample of future price (Contango) Chart 15: Sample of future price (Backwardation) $14, $14,5 Cost = Finance + rent May 7 $5,475 $9,18 Cheaper May 8 $41,295 Indicator = Cost + Price gap
Future prices Chart 16: The development of the indicator 6, 5, 4, 3, 2, 1, 5, (5,) (1,) 6 5 4 3 2 1 27 The LME stock level was extremely low Fund money accelerated the tightness 211 LME stock turned the corner Strong recovery especially in China 214 LME stock was increasing Indonesian government banned ore export (15,) (2,) (25,) (3,) 6month 18month 12month 24month
May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 Future prices Chart 16: The development of the indicator 6, 5, 4, 3, 2, 1, 5 6 5 4 3 2 1 Till October 13 The indicator implied little concern As LME stock increasing Since October 13 Gradually the indicator went negative Followed by Ni price rally September 14 Philippine announced potential ore export ban But the indicator kept up-trend with price fall (5) (1,) (1,5) 6month 18month 12month 24month Now The indictor has been back to the level 212-13. The Market was more panic in H1 in 214.
Shanghai future prices Chart 17: The Future prices of SHFE (as of 12 th May) Chart 18:The price comparison Unit:RMB/MT Open interest Unit : lots Unit:USD/MT 112, 14 16, 111, SHFE Jul SHFE Aug 12 RMB 3,89 LME 3M 11, 1 15, 19, 8 18, 14, 6 17, 16, 4 13, 15, 2 14, ni157 ni159 ni1511 ni161 ni163 12, 27-Mar 3-Apr 1-Apr 17-Apr 24-Apr 1-May 8-May Steep backwardation between July and August in SHEF It has been getting wider as the due date comes closer It might have affect on LME price as well
Conclusion Long Term Deficit from 216 onwards due to the time gap to ramp up Indonesian NPI Nickel price will be supported by the structural shortage Short term Little serious concern about securing nickel Need time before market comes up SHFE July might be a wild card even for LME price
Thank you!! Contact : Kunihiko Mizuno Tel : +81-3-5166-4885 Mail : kunihiko.mizuno@sumitomocorp.co.jp