COLUMN-China throws cold water on nickel bulls LONDON, Sept 23 (Reuters) - Its now a full eight months since Indonesia turned off the supply of nickel ore to Chinas giant nickel pig iron (NPI) sector. The unexpected fulfilment in January of a long-standing promise to ban exports of unprocessed minerals such as nickel ore sent the London nickel market on a super-charged rally, which peaked in May at a high of $21,625 per tonne. Much of those gains have since been given back as the market kicks its heels waiting for some tangible sign of supply stress, not least in China. On the London Metal Exchange (LME), benchmark three-month nickel (CMNI3) was trading either side of $17,000 on Tuesday morning. China, however, is not playing its expected role in the nickel story, the countrys latest trade figures representing another dousing of cold water for the many nickel bulls. (Andy Home is a Reuters columnist. The opinions expressed are his own) By Andy Home IMPORTS SURPRISE Not that there has been any resumption in Indonesian exports of nickel ore. Chinas trade figures for August showed imports of just 39,000 tonnes, very much in line with the previous three months. This material is, in all likelihood, iron ore with a high nickel content that Chinas customs department has misclassified. Moreover, the latest figures from the International Nickel Study Group show Indonesian mined nickel output collapsing to 138,000 tonnes in the January-July period from 421,000 tonnes a year earlier. Indonesian production and Chinese import figures confirm the seismic changes under way in Indonesia, which is using the ban to force its mining sector down the value-added route of processing. However, what is surprising is the volume of material now flowing to China from the Philippines. The latter has historically been the second-most important source of ore for Chinas NPI producers, but less favoured than Indonesia because its ore is lower-grade. As such, it was widely expected that Chinese imports from the Philippines would rise after the Indonesian ban as NPI players attempted to diversify their sourcing of raw materials. But not to the extent were now seeing. Imports of ore from the Philippines topped 5 million tonnes in August for the second month running. Indeed, Augusts tally of 5.33 million tonnes marked an all-time high with cumulative imports in 2014 now up 26 percent at 22.61 million tonnes. The figures now match peak volumes from Indonesia prior to the implementation of the ban at the start of this year, causing analysts to do a collective double-take on a country that had been collectively viewed as a second-tier supplier. True, the Philippines has shown signs of wanting to follow Indonesia down the same path of value-added processing for its minerals sector but any ban on ore exports is still a long way away, even if the formulation and enactment of any legislation move faster than in Indonesia. (nL5N0RB3DJ) In the interim, the Philippines looks capable of supplying far more replacement ore for Chinese NPI producers than anyone expected. The grade issues havent gone away but there are anecdotal reports of NPI operators blending Philippine ore with stockpiled Indonesian material to extend their raw materials pipeline. There are also cost implications for NPI producers of using lower-grade feed, but the key take-away is that Philippine material is filling the gap left by the Indonesian ban far more efficiently than anticipated. That impacts the bull narrative time-line of NPI production starting to fall, and fall significantly, over the second half of 2014 and into 2015. EXPORTS SURPRISE Even more worrying for bulls is what is happening with Chinas trade in refined nickel. Import volumes might reasonably have been expected to be trending higher right now as the Indonesian ban translated into supply stress in the Chinese market. Far from it, however. Imports of refined nickel have fallen 11 percent in the first eight months of this year. Even worse, from a bulls perspective, exports are booming. Augusts total of 17,910 tonnes brings the cumulative year-to-date total to 80,760 tonnes, compared with just 35,000 tonnes in the same period of 2013. Indeed, at a refined nickel level China has turned net exporter for the first time ever over the last three months. Where is all this metal coming from? There is a steep 15 percent tax on exports of refined nickel, which strongly suggests this metal has been stored in bonded warehouses within China. It wouldnt have paid any import duties or value-added tax and can therefore be re-exported without paying the export tax. Its possible that some of this metal has been flushed out of Chinas bonded zones by the tightening of credit supply in the wake of the Qingdao port scandal. (nL4N0QD0N8) Certainly, there have been robust flows of metal to countries hosting LME good-delivery locations such as Malaysia (19,900 tonnes so far this year) and South Korea (9,700 tonnes). But a relocation of metal to safer-haven storage doesnt fit particularly well with other export flows to countries such as the United States (5,000 tonnes), India (6,200 tonnes) and even Italy (1,100 tonnes). Its hard to avoid the conclusion that China is currently embarked on a massive destocking cycle with the pull of recently elevated prices as important as the push of post-Qingdao credit conditions. CHALLENGING THE NARRATIVE Either way, its not what the market expected eight months after the Indonesian export ban. China is giving every appearance of being awash with nickel at a time when everyone else thought it would be starting to experience a supply deficit caused by the mass closure of NPI capacity. Now, whats going on in the fragmented NPI sector is as obscure as it has ever been. Its quite possible that cost pressures are building and some of the weaker players are indeed exiting the market. Visibility is too poor to say with any degree of certainty. Nor should we forget that Chinese stainless steel producers, who are the ultimate buyers of all that NPI, might be stepping up imports of nickel in other forms such as stainless scrap, which dont make it into the countrys trade headlines. Its noticeable, for example, that imports of ferronickel have mushroomed by 76 percent to 160,100 tonnes so far this year. But that cant mask the challenges to the accepted nickel bull narrative posed by those booming Philippine ore imports and Chinese refined metal exports. One or the other trend is going to have to change to get the narrative back on track. It could be a long wait, though, and a lot longer than the nickel bulls were expecting. (Editing by Dale Hudson) ((andy.home@thomsonreuters)(Tel: 44-207-542-4412)) Keywords: CHINA NICKEL/HOME
Posted on: Tue, 23 Sep 2014 17:29:02 +0000
Trending Topics
Recently Viewed Topics
© 2015