Nickel price jumps again – Chinese stocks gone by April

Indonesia, supplying more than a fifth of global exports, surprised the mining world in January by putting into effect an outright ban on nickel ore exports.

Initially record warehouse inventories, massive stockpiling by Chinese pig iron producers and growing mine supply kept a lid on the price which was languishing at near five-year lows below $14,000 a tonne at the start of the year.

The Asian nation, against expectations, stuck to its guns and the ban, in combination with fears that tensions with Russia could affect supply from top miner Norilsk, eventually sent the price of the steelmaking ingredient above $20,000 in May.

But as LME stocks continued to rise and the Philippines – the only other source in the region of high-grade laterite ore required by China and responsible for 9% of global mine supply – took up some of Indonesia's slack, supply worries subsided and the price tanked again, nearly wiping out all 2014's gains.

This week traders realized the sell-off was overdone after a report by Shanghai Metals Market forecast Chinese port inventories would be run down by April next year.

Nickel ore stocks at five major ports – Tianjin, Rizhao, Lanshan, Lianyungang and Jingtang – which account for 70% of the total stood at 15.3 million tonnes in October, down 17% since the start of the year.

The nickel subsequently price rallied 5% on Tuesday and today added another 2% to trade at $15,895 a tonne.

On the demand side the outlook for nickel is also rosy. 

Capital Economics, a research house, points out stainless steel production which accounts for 65% of refined nickel demand, has risen sharply in 2014.

US stainless steel output grew 16% during the first half of the year, China's production jumped 17% while the European Union managed to roll out 4% more stainless steel.

Further out the nickel price could also be supported by plans by the Philippines to follow Indonesia's playbook and ban ore exports.

The longer term positives are reflected in price forecasts.

Capital Economics forecasts nickel to reach $21,000 next year, but others are even more bullish. Citibank sees $24,000 next year and a peak of $30,000 while Scotiabank predicts $23,700 in 2015 and highs of $26,500 the year after that.