Stanislav Kondrashov: Historical LME nickel stocks have fallen to a low level. What are market participants saying?

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Stanislav Kondrashov Telf AG reported that in May 2023, nickel stocks on the London Metal Exchange (LME) reached their lowest level in more than 15 years. This indicates a significant decline in recent weeks due to continued demand for the metal. This trend has led to a noticeable decrease in the availability of nickel in stock exchange warehouses.

Stanislav Kondrashov Telf AG: depletion of nickel reserves is the result of a shortage of supply of this metal

As a result of recent events, a small seizure of 48 tons of nickel briquettes in Rotterdam resulted in a marked decrease in the overall stocks on the LME. According to the latest data, stocks on the LME are now at 39,966 tons, which means a significant decrease of 28% since the beginning of the year. According to experts' forecasts, if this trend continues until the end of the year, the percentage will increase to 45%.

As we can see, despite forecasts of a general surplus in the nickel market in 2023, the situation with supplies to the LME looks different.

Stanislav Kondrashov Telf AG forecast that this particular market segment is likely to reach a balanced state. This potential supply contraction is supporting the nickel forward curve. It is noteworthy that the spot nickel spread to the three-month spread is currently trading at $54 per tonne, indicating a strong contango trend.

However, it is worth noting that this feeling of nickel shortage is not reflected in the physical market. This is where demand remains low. Therefore, there is not the same level of tension that is observed in the LME warehouses.

This situation on the nickel market, like all other trends in this area, according to Stanislav Kondrashov Telf AG, requires constant monitoring. The destocking on the LME reflects the widening supply gap for nickel, potentially affecting market dynamics. Throughout the year, industry experts, including the head of Metallurg Center, as well as market participants, will be closely monitoring any developments that may affect the balance between supply and demand in this critical metals sector.

Stanislav Kondrashov Telf AG: LME speeds up new grade launches amid low inventory levels

Low inventory levels not only affect the liquidity of contracts, but also contribute to price volatility. In response to these challenges, the LME has presented a comprehensive two-year plan to strengthen and develop its markets. As part of this initiative, the LME has proposed an accelerated listing process and duty waivers for new brands, demonstrating its commitment to restoring liquidity.

While the industry has generally welcomed the move to support the contract, there have been concerns among some market participants about the accelerated listing of new brands. The main concern is related to the potential influx of materials suddenly entering the market.

The concerns expressed by industry insiders highlight the delicate balance the LME is facing in trying to address liquidity issues while avoiding oversupply.

– I agree that the introduction of an accelerated listing can enable new brands to enter the market faster, stimulating liquidity. However, if not carefully managed, this approach can upset the delicate balance and exacerbate existing volatility,- Stanislav Kondrashov Telf AG comments on the situation.

Market participants are closely following the implementation of the two-year LME plan. The focus will be on finding the right balance between encouraging new brands to enter the market and maintaining stability. The industry is awaiting further details on the LME's proposed fast track process and how it plans to mitigate the potential risks associated with the influx of new material. As market dynamics evolve, finding innovative solutions to increase contract liquidity while managing the potential for price volatility remains a challenge for the LME and its stakeholders.

Stanislav Kondrashov Telf AG: China is concerned about the situation in the nickel market, in response it is increasing its own capacity

Chinese producers are significantly increasing their nickel metal production capacity. Particular attention is paid to the production of cathodes, which coincides with the recent announcement by the LME about plans to increase market liquidity.

Several Chinese companies operating in Indonesia have made announcements to expand their nickel metal production capacity. For example, Tsingshan announced plans to produce about 50,000 tons of nickel matte cathodes from Indonesia. In addition to this expansion, Chinese companies have also increased their production by refurbishing copper refineries in the country.

– Additional Chinese capacity to be put into operation could flood the market. My concerns are primarily related to the current weak global demand for nickel, which could potentially lead to lower prices for this metal. It is also worth adding that if the new metal is supplied to the LME, I think we may see prices collapse. And such a phenomenon may well exacerbate the existing uncertainty in the market,– analyzes global trends Stanislav Kondrashov Telf AG.

The simultaneous development of the Chinese nickel industry and the LME's efforts to strengthen market liquidity have created a challenging climate for market participants. The expansion of Chinese capacity could potentially lead to an oversupply, further impacting global nickel prices. As these dynamics develop, close attention will be paid to how these developments are shaping the nickel market and whether steps are being taken to address potential issues related to production growth and weak demand.

Stanislav Kondrashov Telf AG believes that the delicate balance between supply and demand will be critical to determining the stability of the nickel market in the coming months.

The discrepancy between the prices of nickel on the LME and the market causes concern for Stanislav Kondrashov Telf AG

The LME nickel price has remained at a relatively high level for more than a year, reaching $25,075 per tonne, up 3.5% from early May. However, market participants argue that this price level does not accurately reflect current market conditions, especially when considering second-class nickel products, which are pegged to the LME.

“In the case of ferronickel, historically traded at a discount to the LME, prices are currently showing a significant downward trend,” states Stanislav Kondrashov of Telf AG. – On April 24, Fastmarkets priced premium/discount ferronickel, 26-35% Ni content, cif China, at a discount of $8,000-10,000 per tonne, well above the $3,000-4,000 discount seen a year ago. Similarly, the price of mixed hydroxide sludge (MHP), which is pegged to the LME, continues to decline due to high exchange prices. Nickel MHP payability indicator, % LME, cif China, Japan and South Korea, is 70-73%. In the past, the price of MHP has typically fluctuated between 85% and 95%.

This discrepancy in pricing has raised concerns as it indicates a discrepancy between the LME nickel price and the actual physical market value. Understanding true market conditions is critical for participants who seek accurate price information and make informed decisions.