Nickel Stockpiles Rise to Record as China Turns Net Exporter

Aug 06, 2014 8:17 pm ET

(Updates with producer comment in ninth paragraph.)

Aug. 6 (Bloomberg) -- Nickel inventories in warehouses monitored by the London Metal Exchange extended gains to a record after China, the biggest producer and consumer, shipped more metal out than it imported amid a financing scandal.

Stockpiles climbed to 317,874 metric tons, for a 21 percent increase this year, according to the LME data. Exports of refined nickel from China almost tripled in June to 16,737 tons, exceeding imports for the first time ever by 5,723 tons, customs data show. Nickel is used to make stainless steel.

“The recent build is probably attributable to the pick-up in refined nickel exports that came out of China,” Nicholas Snowdon, an analyst at Standard Chartered Plc in London, said by phone. “That is most likely related to some constraints on financing.”

Nickel has gained the most of the six main metals on the LME this year, rising as much as 56 percent after the largest miner Indonesia banned exports of unprocessed ore, a raw material used to make a lower-grade nickel substitute known as nickel-pig iron. Refined nickel production will exceed demand by 44,200 tons this year before turning into shortage of 97,100 tons in 2015, according to Morgan Stanley.

Prices have pared gains to 35 percent this year, to $18,730 a ton, on speculation that supplies are sufficient for now as stockpiles climbed to a record. The probe into metal inventories held at China’s Qingdao port in June led banks to cut back on financing, leading to more exports.

Less Financing

“It’s entirely possible that metal that was being financed, is now not,” said David Wilson, an analyst at Citigroup Inc. in London. “Financing has been more difficult everywhere because of less liquidity being provided.”

Stockpiles of full-plate cathodes increased 36 percent since the start of June in Johor, and almost doubled in Singapore over the same period, according to the LME data. There are two Chinese companies approved to deliver their nickel cathode into LME warehouses.

Refined nickel approved by the LME is used in about one- third of nickel demand as consumers first use scrap, ferronickel, nickel-pig iron or off-grade material, according to Citigroup. The LME’s network of more than 700 depots worldwide doesn’t stretch to China, the biggest consumer of industrial metals.

Warehouses in Johor, Malaysia, have 157,200 tons of refined nickel, or 49 percent of the LME total and are 38 percent higher for this year. The total LME nickel stockpiles equal about 1.5 months of consumption, Anton Berlin, head of strategic marketing at OAO GMK Norilsk Nickel, said in an interview.

Nickel Briquettes

More than 80 percent of refined nickel stored in Johor is in the form of briquettes, which have been delivered throughout this year. The material probably came from Australia, according to Citigroup.

BHP Billiton Ltd. and Minara Resources Ltd., owned by Glencore Plc, are Australian producers whose brands are approved by the LME, according to the bourse’s website. The metal may not be available for immediate release, Wilson said.

“You’ve had this big build-up of briquettes in Johor,” Wilson said. “I suspect we’ll continue to see those briquettes being built. Whether they’re actually available is a very different question. They’re not necessarily available to everybody unless they want to pay a decent premium for them.”

Nickel inventories should start to fall by the middle of next year as stainless-steel producers in China are forced to switch from using nickel-pig iron to other forms of nickel and ultimately the refined metal, according to Standard Chartered. High stockpiles will probably cap prices until a shortage takes hold, National Australia Bank Ltd. said in a report Aug. 4.

--With assistance from Yuliya Fedorinova in Moscow.