Singapore 16/03/2016 - (Adds background, data and comment)
The Shanghai Futures Exchange has lifted its nickel storage capacity by 32,000 tonnes as of March 15, the exchange said on its website on the same day.
The increase is split among four warehouse operators for nickel storage. Total capacity has increased to 20,000 tonnes from 10,000 tonnes at CMST Development (CMSTD) while three other warehousers have been approved by the SHFE for nickel storage against its futures contracts - China Shipping Logistics for 15,000 tonnes, Shanghai Tianmahang Logistics for 5,000 tonnes and Ningbo Free Trade Zone Gaoxin Container Co. Ltd. for 2,000 tonnes.
The increase essentially lifts SHFE warehouse stoarge capacity for nickel to 102,000 tonnes.
"It's still hard to tell that whether there will be lack of space for storing nickel as we approach the May date but so far it's enough. We'll have to keep an eye on it," a physical trader in Shanghai said.
The increase in storage capacity was anticipated in the market on expectations of more deliveries to meet big short positions for the May contract, and following word of delays in nickel deliveries into some warehouses as their storage was close to full capacity.
Analysts estimate that some 40,000-70,000 tonnes could be delivered against the May contract.
SHFE warehouses started seeing a huge inflow of nickel metal after Norilsk Nickel brands were listed by the exchange in June last year. The Russian producer's metal was listed on the SHFE because of concerns of a major squeeze of shorts due to a lack of deliverable material - previously, only six Chinese brands and no foreign brands were listed.
Nickel storage capacity in the two Shanghai warehouses had to be expanded by 30,000 tonnes in October last year to cope with the inflow.
A further capacity expansion will help to prevent a short squeeze similar to that seen in the market before Norilsk Nickel was listed, sources agreed.
“The nickel storage capacity needs to be extended to prevent a short squeeze. It will ensure fair play for all,” said a Shanghai-based metals analyst.
Nickel stocks into SHFE warehouses have continued to rise. Seven warehouses approved for nickel delivery - three in Shanghai, two in Zhejiang and one each in Jiangsu and Shandong - have total available capacity of 5,998 tonnes as at March 11, down 1,784 from a week ago.
In Shanghai, available capacity is just at 2,049 tonnes on March 11, down 296 tonnes week-on-week. Of the 66,198 tonnes of deliverable nickel stocks in the seven warehouses, 60,000 tonnes are in Shanghai.
The most active nickel contract for May delivery was last at 68,000 yuan per tonne on Wednesday, down 350 yuan from the previous day’s close, with open interest at around 420,000 lots.
(Additional reporting by Vicky Chen)