CORRECTION - FOCUS - SHFE nickel comes under pressure as Philippine effect wanes

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Vivian Teovivian.teo@fastmarkets.comJoint News Editor - Asia

Singapore 17/08/2016 - (Corrects date to August 8-11 from August 15-18 in second par)

Nickel contracts on the Shanghai Futures Exchange (SHFE) have come under pressure as market participants who see limited upside for the metal in the near-term are squaring off both short and long positions.

Last week, the market saw a consistent build-up of short positions on SHFE nickel contract – the top 20 futures brokerages who traded on the exchange cumulatively opened over 20,000 short positions on August 8-11, according to exchange data.

On Tuesday, major brokers closed off close to 4,900 short positions and around 2,400 long positions.

“Interest has started to decrease in nickel after the recent price-run up. I think nickel prices have reached high enough for the near-term,” said a trader with a Shanghai-based hedge fund.

Some brokers have been advising clients to close off long positions, or to go short, because they reckon that nickel could see further downside in the near-term as the Philippine mining clampdown – the main reason for SHFE nickel’s upward trajectory since late-June - has been fully factored into prices.

The Philippine mining review has not hurt major nickel producers, said Beijing-based Galaxy Futures.

“The nickel price increase brought on by the mining review since late-June has ended. We see nickel coming under pressure in the near term,” the broker said in a Monday report.

Chinese metals research firm Beijing Antaike also noted a lack of positive news to drive nickel prices higher.

“SHFE nickel’s failure to break resistance shows its lack of strength. The market remains pessimistic in the near term,” it said on Tuesday.

SHFE nickel has largely been boosted by the mining review carried out by the Philippines since July on fears that the audit will disrupt nickel ore mining and exports.

But industry watchers said the actual disruption to supply has been minute so far. The eight nickel miners that have been ordered to halt operations by the government so far only made up eight percent of Philippines’ total nickel ore exports last year, said Galaxy.

Six are not shipping nickel ore normally due to the local rainy season while the other two miners are small and had only shipped 150,000-200,000 tonnes to China this year, it added.

“Some people did not dare to short nickel for a while due to the Philippine issue. But they are now realising that this is not causing any supply shortage and some are switching to short positions,” said a London-based market observer.

SHFE nickel is also likely to be seeing some pressure from traders who reckon prices have reached their maximum in the short term and have started to hedge.

“Late last week, we had some big traders asking us whether it was time to go in to hedge and lock in the price. I believe some have taken action at the current price level,” said an analyst with a Beijing-based futures brokerage. 

While there may be downside pressure for nickel in the near-term, some said there is still some uncertainty to the Philippine mining issue.

“I’m not sure if that is all for the Philippine mining issue. The uncertainty is that there could still be more announcements from the Philippines when their mining review is completed,” said the first trader.

The Philippines is expected to complete its mining review this week.

The SHFE January nickel contract closed at 81,490 yuan on Tuesday, up 640 yuan from Monday’s close.

(Additional reporting by Vicky Chen)

 



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