Nickel – available for mere dimes?
The US nickel market has entered the summer doldrums, with some trading houses and producers moving nickel into LME-bonded warehouses rather than sell tiny volumes to consumers with regional premiums at near-decade lows.
Spot premiums for truckloads of melting-grade nickel have tightened to range of 18-23 cents per pound from 15-23 cents previously, on top of the three-month London Metal Exchange (LME) price. Plating-grade nickel premiums remain in a range of 50-65 cents.
But the slight up-tick in the lower end of the melting-grade range is not due to any kind of end-market improvement. The US stainless steel sector remains notably weak and is unlikely to recover until the end of the holiday season.
Instead, the bottom end has inched up because metal holders would rather deliver to a LME warehouse than “give away” metal at 15-cent premiums, a US-based trader said.
“The seasonal slowdown has already been pretty severe,” he added. “[The mills] are well supplied and have no intention of building inventories given the sickly economic backdrop. We’re not expecting any kind of substantial business until September.”
The weak demand conditions have put some producers, who might be holding inventories, in a difficult situation. Unable or unwilling to sell volumes at unreasonable and low-profit premiums, several have resorted to the LME warehouse system.
Earlier this month, nickel was warranted into a US warehouse for the first time since October 2009. Stocks of full plate nickel now stand at a 402 tonnes. Also, the choice of Detroit makes sense in that Metro-owned warehouses there offer some of the best incentives and queues to remove metal can stretch out a year or longer.
“There just aren’t any [end-market] consumers looking to buy spot nickel. And even if there was business to be had, it’s at [premium] levels that don’t make financial sense,” a second US-based trader said. “If I bought the nickel at 23 cents, I’m not going to turn around and sell it at 17-18 cents.”
“People figure ‘why not take advantage of attractive [warehousing] rates and let the metal get lost among the mountains of aluminium [in Detroit] for six months or a year?’ This may not be the preferred strategy but it’s really only an option because [consumer] demand just isn’t there,” the trader added.
In Europe, a similar situation is unfolding in Vlissingen – nickel stocks there rose 144 percent this week to 8,538 tonnes as traders took advantage of high incentives.
The Dutch location now holds 8.3 percent of all nickel stocks compared with three percent in May and zero early in April, raising concerns that more and more material is being caught in long queues and thus not accessible to the market.
The general consensus is that metal is being removed from Rotterdam – where the bulk of stocks is located – to Vlissingen for incentives of reportedly $90-110 per tonne. Premiums have risen slightly this week to $0-40 in-warehouse in Rotterdam from a previous $0-25.
Meanwhile, three-month nickel on the London Metal Exchange is currently trading near a 32-month low at $15,953 per tonne, down $182 from the previous session close. Total LME stocks warehouse stocks have risen 33 percent since November to 110,658 tonnes.
“Nickel continues to display some of the weakest trends of the base metals in 2012 with current LME prices close to the lowest since the end of 2009,” Barclays Capital said.
“The near-term prospect for a rebound in prices appears solely limited to short covering bursts, in our view, given that from a fundamental perspective at least, conditions remain soft,” it added – it has lowered its second-half nickel forecast to $17,750 from $19,875 previously.
