FOCUS - Chinese appetite for Russian nickel wobbles, premiums dip

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Meimei Qinmeimei.qin@fastmarkets.com+442072642479

London 05/05/2016 - Nickel premiums in Shanghai dropped this week due to negative LME-SHFE arbitrage, the time needed for delivery against the popular SHFE May contract and the fact that newly expanded warehouses in China are already nearing capacity.

Premiums for full-plate nickel cathodes dropped to $130-160 per tonne on a cost, insurance and freight (CIF) basis and in bonded warehouses in Shanghai from $150-170 last week, with some activity heard as low as $120 for Russian nickel.

Most Russian material was quoted at the lower end of the range while Sumitomo and Jinchuan brands were at the higher end, according to local sources.

"We've seen an obvious decrease of three SHFE-deliverable Russian brands coming into China recently," a trader in Shanghai said.

Three Russian brands - Norilsk Combine H-1, Severonickel Combine H-1 and Serveronickel Combine H-1Y - are regularly shipped to China and sold at healthy premiums; Chinese nickel traders look for cathodes that can be delivered against the SHFE contract.

"Not so many people are looking for the three Russian brands this week - there's no strong motivation for them to ship the metal to China," a trader in Asia said. "The arbitrage window has closed in the past few days and also it's too late to purchase the metal now for delivery to the SHFE for the May contract."

The physical arbitrage between London and Shanghai moved into negative territory by more than $150 per tonne on Tuesday, including insurance, transport costs and taxes.

It usually take 15-20 days to ship the Russian metal to Chinese ports, move it through customs into the country, create electronic warrants for it and finally delivery it to the SHFE.

"If we cannot finish making warrants before May 15, then everything will be too late for the May contract," a second local trader said.

The January, May and September contract months are typically the most active. The May 2016 contract, the expiration date for which is May 16 and the last delivery date for which is May 23, has open interest of around 83,556 on Thursday, comfortably more than the following months before it increases again for September.

LIMITED WAREHOUSE SPACE

Limited warehouse capacity for nickel in China has also made traders more hesitant about buying recently despite the approaching key dates for the active May contract, some traders also noted.

"If we continue buying nickel, it will be hard for us to find a place to store the metal as most warehouses are almost full," a trader in Shanghai said.

"Warehouses for nickel in China were nearly fully booked two weeks even after SHFE raised its storage capacity earlier this year," a second local trading source said.

The SHFE lifted its nickel storage capacity by 32,000 tonnes in March to around 102,000 tonnes. To accommodate further potential inflows, the SHFE may expand nickel storage capacity further in the future, several warehouse sources said on Wednesday.

"There's no timetable for the talks on possible warehouse expansion and so far it's not easy to find a corner to store the metal," a third local trader said.

 (Editing by Mark Shaw)



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