Viewpoint: Nickel premiums likely to hold

Spot melting-grade nickel premiums are forecast to end the year little changed from their current levels as LME nickel remains in its current, historically low, range.

Nickel premiums are expected to end the year at 21-26¢/lb, a widening from current levels of 23-26¢/lb, largely reflecting weaker end-of-year demand as consumers seek to pare their inventories.

US nickel premiums for melting grade material began the year at 20-22¢/lb, with a low of 18¢/lb recorded on 2 February and a high of 27¢/lb on 22 June. The average range for full truckload, 4x4inch melting-grade for the first six months was 22-25¢/lb. Premiums account for freight, financing and packaging, and tend to track exchange prices.

Market participants expect LME nickel prices to remain in the $9,000-10,000/t ($4.08-4.54/lb) range for the remainder of the year. Nickel averaged $9,168/t over the last three months through July 20 after falling from year highs of above $10,000/t in the first quarter.

It settled at $9,615/t on 21 July, bouncing from its low for the year of $8,790/t on 13 June.

Global oversupply and uncertainty regarding nickel production in Indonesia and the Philippines, two major producers, will likely continue to move the market.

Nickel stocks in LME warehouses were near historic highs at 376,566/t on 20 July, 25.5pc above the five-year average of 300,000t, and a sign of abundant supply.

The government of Indonesia previously banned the export of unprocessed nickel ore to stimulate the country's domestic processing capabilities, which supported nickel prices. But early this year it partially eased its ban on exports of low-grade nickel ore, sending nickel prices lower.

The Philippines government in early May rejected the appointment of Regina Lopez as environment secretary, effectively overturning her plans to close of 22 out of 41 mines for environmental reasons. The prospect of the closures boosted nickel and her ouster weakened metal prices.

Brazilian producer Vale, one of the largest producers of nickel in the world, plans to review its nickel operations in New Caledonia, which has met financial and operating troubles, and elsewhere.

As nickel prices remain below $10,000/t, it is likely other mining companies will review struggling operations. Any idlings or closures could boost prices.