Singapore 25/01/2016 - The first quarter of this year offers price upside for nickel on stainless steel restock season and the start of production cuts among nickel sulphide miners, said Morgan Stanley in a report last Friday.
Production cuts among sulphide miners have finally started, responding to massive supply and stainless steel destocking, it said.
Votorantim has announced plans to suspend operations at its Niquelandia and Sao Miguel Paulista operations in Brazil from February 1 which takes total cuts to two percent of 2016’s global nickel supply, the report said.
The production suspensions were surprising as many were expecting a cut among high cost assets in New Caledonia and Australia, and not second cost quartile assets in Brazil.
“But with prices now close to the first quartile, all players are feeling the pressure,” said Morgan Stanley. “With these latest cuts, price risk probably switches to the upside now.”
Last week also saw Queensland Nickel’s 30,000 tonnes per year Yabulu refinery in Australia enter voluntary administration and while production has not yet been affected, the possibility of a short-term closure exists, which would affect the New Caledonian nickel miners, the producer’s suppliers, it said.
Votorantim's suspension alone may be sufficient to push a finely balanced global nickel market into modest deficit in 2016, but a short-term buffer exists in inventories - which amount to 14 weeks of consumption - with Shanghai inventories still rising, it added.
A more substantial deficit could be needed to draw down inventories to ‘normal’ levels of four weeks of consumption at 150,000 tonnes - 360,000 tonnes below current levels - making further cuts or a demand hike necessary, Morgan Stanley said.
China's nickel production output - which amounted to 16 percent year-on-year in September-November 2015 - and a seasonal restock by Chinese stainless steel mills is possible too post-Chinese New Year, it added.
Nickel remains Morgan Stanley’s top commodity pick for 2016.
The London Metal Exchange three-month nickel price was last at $8,615, down $85 from Friday’s close.