LME nickel stocks at multi-year low

London Metal Exchange (LME) warehouse nickel stocks have reached their lowest point since 2007 on Wednesday May 3, following gradual withdrawals in recent weeks

With a small removal of 48 tonnes of nickel briquettes in Rotterdam, total LME stocks have dropped to 39,966 tonnes.

This new level represents a 28% decline since January 3, and a 45% decline year on year. It suggests a growing tightness for nickel supply.

Though the total nickel market is forecasted to be in a surplus in 2023, the class one or LME deliverable market is expected to be balanced.

This potential tightness is supporting the nickel forward curve, which is in persistent contango, with the nickel cash to three-month spread current trading at a $54 per tonne contango.

However, this sense of tightness is not supported in the physical market where poor demand continues to keep premiums under pressure globally.

Participants noted that the low stock environment is also impacting contract liquidity, which has often led to price volatility.

On March 30, the LME announced a two-year plan ‘strengthen and enhance’ its markets. Within this plan, the LME outlined that it would introduce a fast-tracked listing approach and fee waiver for new brands as part of its commitment “to rebuilding liquidity.”

While measures to support the contract have been welcomed by the industry, the fast-tracking of new brands has raised concerns among some industry participants.

“While liquidity is definitely an issue, you don’t want to risk the market being flooded with material all of a sudden,” one trader source in Europe said.

Chinese producers ramp up nickel metal capacity

The LME announcement comes at a time when Chinese nickel producers are ramping up capacity of nickel metal, particularly cathode.

Announcements have come from a series of companies within China. Chinese companies operating in Indonesia have expanded their nickel metal capacity. One example is Tsingshan, which announced it would produce around 50,000 tonnes of cathode from nickel matte in Indonesia.

This capacity is on top of their additional production from converted copper refining plants in China.

“The additional Chinese capacity set to come online could flood the market,” a trader source in Asia said.

The concerns largely arise from the weak global demand for nickel, which could result in lower prices globally for nickel metal.

“If the new metal is LME-deliverable, I think we could see the price collapse,” the same source added.

The LME nickel price has been trading at a relatively high level for more than a year now, with the official nickel cash price closing at $25,075 per tonne on May 3, up 3.5% since May 2.

This price level is said to not reflect the current market conditions, with participants pointing to the current price levels of class two products which are pegged to the LME.

For instance, in ferronickel, which historically trades as a discount to the LME, prices are trading at a steep discount.

Fastmarkets’ assessment for the ferro-nickel premium/discount, 26-35% Ni contained, cif China was $8,000-10,000 discount on April 24, and increase from the $3,000-4,000 per tonne discount a year prior.

Similarly, MHP, which is priced as a payable to the LME, continues to remain under pressure given high LME prices. Fastmarkets’ assessment of the nickel mixed hydroxide precipitate payable indicator, % London Metal Exchange, cif China, Japan, and South Korea was 70-73%.

Historically, the MHP price has been reported to trade in the 85-95% range.

“The discounts that class two nickel is trading at gives you an idea of where people see the real physical market price,” a third trader source said.

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