The price of nickel swung wildly on Tuesday, rising to its highest level in nine months on worries about possible mines closures in the Philippines before it was hit by flurry of profit-taking and fell by more than 3 per cent.
The metal, which is used to make stainless steel, has been one of the worst-hit commodities during the recent price rout. Weakening demand in China and excess supply saw the price tumble 40 per cent last year and left most of the industry struggling to turn a profit.
Nickel for delivery in three months on the London Metal Exchange rose as much as 3.3 per cent to $10,300 a tonne on Tuesday on the prospects of supply cuts before falling over $300 to $9,640 as the US dollar strengthened and investors booked profits. A stronger US dollar makes commodities more expensive for holders of other currencies.It has rebounded 13 per cent this year to more than $10,000 a tonne, lifted by the prospect of demand exceeding supply for the first time in years. Fears of lower output from the Philippines, a key supplier of unprocessed ore to China, has given prices a further boost.
After Indonesia banned exports of unprocessed raw materials in 2014, China turned to the Philippines to provide much of the ore needed to produce nickel pig iron, a cheap alternative to refined nickel.
That supply is now under threat. Philippine’s new President Rodrigo Duterte has called on the mining industry to stop “spoiling the land” and appointed a committed environmentalist as the country’s new natural resources minister.
“The new environment secretary, Gina Lopez, stated last week that only 30 per cent of domestic mine operations meet international mining standards,” said Nicholas Snowdon, analyst at Standard Chartered. “Lopez also said that she plans to audit all existing mining operations and those that fail will forfeit their environmental permit.”
Nickel ore is largely produced by open pit mining which could be targeted by any new regulations.
Even so analysts think the recent rally will run out of stream. The point to large stocks piles of refined nickel sitting in warehouses in and outside the LME warehousing network. They also say that much of the additional Chinese stainless steel production in recent months has either been exported or stored.
In addition, few producers outside of China and Brazil have yet to cut production or close mines even though many of them continue to haemorrhage cash. Even after its recent rally nickel is still down 13 per cent on this time a year ago and is well below the level $20,000 a tonne it reached after the Indonesian ban first came into force.
Of other industrial metals, copper dropped $64 to $4,821 a tonne, weighed down by a strong dollar and news that 11,000 tonnes of metal had been deposited in LME warehouses in Singapore.
Copper almost reached $5,000 last week as hedge funds and speculators rushed to close positions that had been betting on lower prices.
“We struggle to see catalysts to move copper out of its current range, though for nickel the long awaited deficit is finally emerging,” said analysts at Macquarie.