London 21/07/2016 - Nickel premiums plunged to eight-month lows in China earlier this week - the LME-SHFE arbitrage worsened after LME prices bounced following reports of potential supply-side disruptions in the Philippines.
Shanghai full plate premiums dropped to $130-150 per tonne for SHFE-deliverable brands and to $100-130 for non-deliverable material both bonded and on a cost, insurance and freight (CIF) basis, down $30 and $20-30 respectively on last week.
"It’s purely due to the negative arbitrage - nothing else,” an European trader active in Asia said, adding that “the [Philippines] news distorted the market”.
"The terrible arbitrage has stopped the business and the market is dead," a Shanghai-based trader agreed, noting the overall trading volume was extremely thin.
The LME three-month nickel prices hit $10,660 per tonne on Tuesday following reports that the Philippines government might close mines following an environmental audit of the mining industry.
In China, Jinchuan's nickel cathode benchmark price rose to 82,500 yuan ($12,360) per tonne on Tuesday from 80,200 yuan ($12,007) the day before, according to the website of China's biggest nickel producer.
“Domestic [metal] prices in China were in a relatively slow to respond to the LME surge - that’s usually the case when a big rise emerges on LME,” a third trader noted.
This has moved the physical arbitrage between London and Shanghai further into negative territory at around $450 per tonne including insurance, transport costs and taxes, according to FastMarkets’ calculation.
“We lost the motivation to import on the arbitrage,” a third local trader told FastMarkets.
"Nobody wants to sell at the current [nickel] premium levels and it will take some time to make deals. If the [China import] arb keeps negative and price rallies continue, we will see more downtrend pressure on premiums," a fourth trading source in Asia said.
Three-month nickel on the LME climbed to a high of $10,900 per tonne today, which is the top level since August 2015. It was last at $10,835, up $255.
(Editing by Tom Jennemann)