2:31 PM
alphaadvisory
Barclays' research into the Chinese NPI (Nickel Pig Iron) sector and
in particular the ongoing expansion in low-cost, high-quality product
rotary kiln electric furnace capacity, means that there is an inexorable
trend in China towards two outcomes in the nickel market:
--China will require fewer refined nickel units for import – as much as 170Kt of Ni-contained NPI capacity will ramp up in 2013, which more than outweighs the 78Kt of nickel production expected from key new HPAL and ferronickel mine projects, and
--Given that the nickel market remains in significant surplus, prices need to trade into the cost curve and current stainless market conditions point to a necessity for nickel prices to trade close to average NPI sector costs, which are now close to the $15,700/t level.
Whilst positive macro sentiment has propelled nickel prices above $18,000/t in February so far, this has coincided with an ongoing deterioration in fundamental expectations which, in turn, points to a significant retracement lower in prices, in Barcalys' view.
“Our 2012 surplus has expanded to 81Kt and is now projected to reach 68Kt in 2013, versus our previous 43Kt forecast. Sustained weaker-than-anticipated stainless sector activity in Q4, combined with strong domestic Chinese production growth, supported a sizeable global surplus formation during the period, as reflected in the 30kt build in LME stocks since October last year.” the Bank noted.
In terms of the 2013 balance, feedback to our base metals flash publication has contributed to a revision higher to our NPI output estimate for 2013 to 330Kt (from 300Kt), in turn bolstering the expected surplus.
Given the recent cutbacks to production expectations for a number of mines ex-China, as well as pessimism over the new generation of HPAL facilities ramping up, it may come as a surprise that our surplus has been expanding at the same time, the Bank noted.
--China will require fewer refined nickel units for import – as much as 170Kt of Ni-contained NPI capacity will ramp up in 2013, which more than outweighs the 78Kt of nickel production expected from key new HPAL and ferronickel mine projects, and
--Given that the nickel market remains in significant surplus, prices need to trade into the cost curve and current stainless market conditions point to a necessity for nickel prices to trade close to average NPI sector costs, which are now close to the $15,700/t level.
Whilst positive macro sentiment has propelled nickel prices above $18,000/t in February so far, this has coincided with an ongoing deterioration in fundamental expectations which, in turn, points to a significant retracement lower in prices, in Barcalys' view.
“Our 2012 surplus has expanded to 81Kt and is now projected to reach 68Kt in 2013, versus our previous 43Kt forecast. Sustained weaker-than-anticipated stainless sector activity in Q4, combined with strong domestic Chinese production growth, supported a sizeable global surplus formation during the period, as reflected in the 30kt build in LME stocks since October last year.” the Bank noted.
In terms of the 2013 balance, feedback to our base metals flash publication has contributed to a revision higher to our NPI output estimate for 2013 to 330Kt (from 300Kt), in turn bolstering the expected surplus.
Given the recent cutbacks to production expectations for a number of mines ex-China, as well as pessimism over the new generation of HPAL facilities ramping up, it may come as a surprise that our surplus has been expanding at the same time, the Bank noted.
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