London 10/06/2016 - A lack of nickel in Europe has pushed briquette premiums to their highest since November 2014, creating opportunities for traders in the Far East.
Premiums on nickel briquettes in Europe were last at $80-100, their highest in 20 months, with some large tonnages heard at even higher levels. Briquette rates had started the year between $10 and $20 in Europe.
A significant shortage of low-grade nickel alloys such as ferro-nickel and a tight scrap market - prices are trading not far from 13-year highs - are forcing those seeking cheaper material to move higher up the purity chain.
Some traders are therefore looking to buy up cheap material in the Far East - where briquettes are easily sourced and available with no premium - and moving it to Europe to take advantage of a "developing arbitrage", they said.
"We're looking at this trade carefully - many are," a trader in Singapore told FastMarkets. "If things move any higher, then you'll start seeing it happening."
Premiums of $100-110 are needed in Europe to cover both the cost of freight and the FOT charges on arrival, traders largely agreed.
"We're looking at it but it needs to move a little bit higher for it to cover all the costs," another said.
The maximum average of FOT charges in Europe, according to LME regulations, around April this year was around $55 in Rotterdam. Shipping would cost around $40 per tonne, traders estimate.
With shipping taking around two weeks to a month, the forward curve would benefit the trader to some degree - cash to July was last in a $18 contango, cash to August $33 and cash to threes $45.
"The opportunity [to move material from Asia] is small; it depends on your internal financing costs," a trader in Europe said. "It wouldn't be a huge margin at the moment but if you’re doing large tonnages - say, 10,000 tonnes, then maybe but only the large trading houses will be looking at this."
In Southeast Asia and China, a significant shortage of Norilsk Nickel's H1 cathodes - which are deliverable on the Shanghai Futures Exchange - means premiums as high as $200 are reported for good tonnages. It is "impossible" to source the material there at present, some warrant traders have told FastMarkets.
Around the start of the year, some Singaporean traders were buying cheaper full plate cathodes and shipping them to Asia while supply of the Russian material was thin, they said.
In contrast, the market is flooded with briquettes - BHP material from Australia is easily found, particularly in Taiwan where there are around 50,000 tonnes.
In Europe, while full-plate cathodes are getting tighter because much of the material is locked away on financing deals, there are far more cathodes both off warrant and in LME-listed warehouses there.
(Editing by Mark Shaw)