Singapore 22/01/2016 - The market is rife with talk that China will purchase more nickel or add more of the metal to its commercial stockpiles over the next few months.
China's State Reserve Bureau (SRB) is looking to buy more nickel for strategic stockpiling in the first half of the year, according to speculation, though sources are divided over volumes and from where it will be sourced.
Two analyst sources claimed to have heard that the SRB will buy 1,000 tonnes per month of mainly Japanese-origin nickel through one or two state-owned domestic firms over the first six months of the year but one trader source claimed the figure is in fact 6,000 tonnes per month.
"Now is a good time for the government to buy given the low prices. It would not be to support prices but for strategic purposes as China is not self-sufficient and still reliant on imports for nickel," one of the analysts said.
While some sources suggested the SRB prefers imported nickel to Chinese supply because global nickel prices are lower than domestic prices, other sources argued that the SRB would favour Shanghai Futures Exchange-deliverable brands such as Jinchuan or Norilsk Nickel.
The rumour could not be verified officially.
The latest speculation follows reports earlier this month of even larger SRB buying of 30,000-50,000 tonnes of nickel, said to be mostly imports, between December and early in January.
The Chinese government is also rumoured to be preparing to offer a three-year loan of 30 billion yuan ($4.6 million) at zero or very low interest rates for the commercial stockpiling of metals, part of which will be used for stockpiling nickel after aluminium.
"Beijing is said to have given approval to stockpile aluminium first and then nickel. Zinc and copper will follow in that order. But quantities for the latter three metals are unknown," a second trader source said.
The first 11 billion yuan of the loan will be allocated to the stockpiling of around a million tonnes of aluminium, according to widespread speculation.
On the SHFE, the active May contract ended 940 yuan or 1.4 percent higher over the week to close at 70,160 yuan per tonne on Friday.
Meanwhile, LME three-month nickel was last at $8,750 per tonne on Friday, up $10 on Thursday's close and an increase of $345 or 4.1 percent from last Friday's close of $8,405.
Still, stockpiling in China is unlikely to propel prices much higher given the huge global inventory overhang, industry watchers largely agreed. LME stocks dipped 594 tonnes to 450,174 tonnes, according to today's inventory data, but hit all-time highs around 470,000 tonnes in mid-2015.
A further 550,000 tonnes of nickel in the form of refined metal and ferronickel/nickel pig iron are held at producers, consumers, traders and financers globally, Citi Research estimated in a report on Wednesday.
"The stockpiling measures by Beijing may help to slow down the rate or extent of price declines but it can't cause a significant price rebound. You still need production shutdowns and cuts to do that," the second trader said.
The macroeconomic environment and demand must also improve before base metal prices, including nickel, can make a significant recovery, he added.
Global demand for stainless steel - the largest user of nickel - also remains weak, sources noted. On Thursday, JP Morgan forecast Chinese stainless steel production to climb to 0.7 percent this year after growth of 1.3 percent in 2015.
All being equal, a decline of one percent in Chinese stainless production this year would result in global nickel demand dropping by around 10,000 tonnes, it estimated. But should market swing to contraction of one percent, it would reduce Chinese nickel demand by 35,000 tonnes, it added.
The SRB bought 150,000 tonnes of domestic copper cathodes via a tender earlier this month.
(Additional reporting by Perrine Faye, Meimei Qin and Vicky Chen, editing by Mark Shaw)