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China’s State Reserves Bureau has purchased nickel for the first time since 2009. While that is not likely to impact prices for the metal in the long term, a short-term rise is expected.
The nickel market posted a surplus of 97,000 metric tons (MT) in 2012 and is set to record a similar amount of overproduction — 90,000 MT — this year, the International Nickel Study Group believes. While that doesn’t bode well for prices, it does present an opportunity for those looking to buy the metal on the cheap.
One such entity is China’s State Reserves Bureau (SRB), which is responsible for managing the country’s reserves of strategic materials such as copper, iron and of course nickel. At the beginning of June, it revealed that in recent months it has bought 30,000 MT of nickel, the equivalent of just over 15 percent of London Metal Exchange warehouse stocks, according to the Financial Times.
Prior to that purchase, the SRB had not bought base metals on the international market since early 2009, in the aftermath of the 2008 financial crisis.
What does the SRB’s buying mean?
Traders quoted by the Financial Times believe that the SRB’s purchase may indicate that China is confident about its future consumption, with one senior metals trader commenting, “China has destocked to quite a large degree and prices are at a level where the SRB is buying commodities. If you had bought copper every time the SRB bought copper you would have made a fortune.”
Aside from hinting at what is in store for China’s consumption, the news also suggests that a price rise may be in store for nickel. There is certainly precedent for that — as the Financial Times article states, the SRB’s buying in 2009 ”helped put a floor under prices, setting the stage for a surge over the next two years.”
However, MetalMiner notes that the SRB may simply be “doing its job and rebuilding a depleted stockpile at a time when prices have fallen sufficiently that they present fair value.” The publication also states that “the fundamentals do not support a strong rally in prices.”
Similarly, a nickel analyst at state-owned metals consultancy Beijing Antaike told Platts he believes that while the SRB’s intent was to boost nickel prices, its move is “unlikely to have a significant impact on overall demand and supply fundamentals.” That idea was echoed by a Chinese trader who told Platts that “[t]he market fundamentals remain weak for refined nickel due to prolonged weak demand from stainless steel producers,” meaning that the SRB’s purchasing will likely only produce a short-term rise in prices.
China’s nickel stockpiles now sit at 50,000 MT and the SRB is expected to continue buying as the year progresses. MetalMiner recommends keeping an eye on SRB reports to see what impact its next moves have on nickel prices.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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