Source: ZE

Source: ZE

As nickel prices on the London Metal Exchange (LME) have plummeted to their lowest levels since 2009, mining companies and investors have been questioning the future prospects of nickel extraction.

Oversupply created by new and existing mines worldwide, coupled with China’s introduction of Nickel Pig Iron (NPI) (a low grade ferronickel produced as a cheaper alternative to pure nickel that has flooded the market) ,have sent nickel prices tumbling to a record low.

Production of NPI started to increase in 2006 when nickel prices sky rocketed. It now accounts for 30% of China’s Nickel consumption. Adding to this has been the Chinese government’s recent announcement to provide temporary discounts on electricity fees for producers of NPI in its Mongolian region, which will make this cheaper alternative even more inexpensive to produce.

Other economic factors that have affected the nickels market include the Philippines government’s decision to rewrite of their mining act. The country will now impose a single tax rate of 10% on gross sales of mineral products instead of the existing 2% tax.

This graph below created using ZEMA shows the drastic decrease is nickel prices on the LME over the last two and a half years.

nickel-graph

Figure 1: The decline in nickel prices on the London Metal Exchange. Source: LME, Graph created by ZEMA

However not is all lost. Although KPMG recently reported that global production continues to exceed consumption, they also said production cuts and new nickel mine closures in 2013 will restore the nickel market balance, which may lead to a recovery in the market growth rate in 2014.

Meanwhile in Indonesia, the world’s largest tin and nickel ore producer, government officials have officially ruled that it will go through with its full ban on exports of unprocessed mineral ores slated to begin in 2014, also helping to restore supply levels in the market.

Over in China, the demand for stainless steel is drastically on the rise due to a boom in the building and fabrication industries. China is one of the world’s largest producers of stainless steel controlling almost half of the market share. Since nickel is a main component in the production of stainless steal the oversupply should begin to wane and China will need to ramp up their imports to keep up with the demand.

Large scale projects are underway backed by experienced and well established companies in the nickel mining industry.

In the region of New Caledonia for example, which holds about 25% of the world’s nickel reserves the nickel industry is being transformed. In the 1990’s the government broke the French restriction on investment from overseas competitors to allow growth in the region. This has paved the way for the recent construction of a $5 billion plant in the Koniambo massif, backed by the Societe Miniere du Sud Pacicique (SMSP) and Glencore Xstrata.

SMSP also has had a strategic deal in place with China’s Ninbo Corporation and has been supplying nickel directly to the Chinese market.

With so much activity in Asia taking place, trying to keep track of all of this market data can be challenging.

I work with a company that has developed an end-to-end enterprise data management solution for energy, commodities, and financial market data. We offer clients access to an extensive global market data library using our flagship product the ZEMA Suite. By using our product you can make sense of metal prices on the LME and other exchanges worldwide.