Goldman Says Nickel Stock Build Partly Result of Qingdao Probe

Aug 28, 2014 9:35 pm ET

Aug. 28 (Bloomberg) -- Rising London Metal Exchange nickel stockpiles are a result of inventories shifting out of storage in Australia and China and don’t reflect real supply and demand, according to Goldman Sachs Group Inc.

Stockpiles tracked by the LME rose 25 percent this year to a record 326,466 metric tons even with a ban on ore exports from Indonesia and rising global demand. As much as 80,000 tons of the almost 185,000-ton inventory increase since the start of 2013 is due to metal moving from Australian stockpiles and out of Chinese bonded warehouses after a probe into loan fraud in Qingdao Port, Goldman Sachs analysts including Max Layton said in a report dated yesterday.

“LME nickel stocks have continued to rise substantially, raising questions about the scale of the ongoing surplus in the market,” the bank said in the report. The rising inventories “are not representative of the global nickel balance in 2014,” according to Goldman Sachs.

Inventories in Johor, Malaysia, jumped 44 percent this year to a record 164,268 tons. Johor accounts for 50 percent of global LME stockpiles, while Rotterdam has 33 percent, or 107,034 tons, according to bourse data.

“Looking ahead, as the Australian de-stocking appears to be nearing an end, and as Chinese stocks are drawn down during the next month or so (due to a lower number of financing deals in China), this will reduce upward pressure on Malaysian LME Johor inventories,” the analysts wrote.

Nickel for delivery in three months on the LME fell 0.1 percent to $18,831 tons at 11:34 a.m. in Tokyo. The metal touched $21,625 on May 13, the highest since February 2012. The price is up 35 percent this year, the most among the six main metals on the bourse.

Next Catalyst

A surplus will narrow to 20,000 tons in 2014 from 150,000 tons in 2013 before swinging into a deficit of 210,000 tons in 2015, according to Goldman Sachs. The ban on unprocessed ore by Indonesia, the top nickel miner, raised the marginal cost of nickel production, the analysts said.

With the Southeast Asian nation accounting for more than 20 percent of global supply, the next catalyst for a price advance will be the depletion of high-grade nickel ore stocks in China, the analysts said. This will occur near the end of the year or during the first quarter of 2015 as the Philippines monsoon season in January and February typically results in a drop in ore exports, they said.

The market will see a sustained ore inventory draw-down and prices will rise to $22,000 a ton, according to the report.