Global nickel oversupply will intensify in 2016

Subject

Nickel market tests unprecedented lows.

Significance

The price of nickel, viewed initially as a favourite metal for 2015, has fallen 40.5% overall last year, making it the worst-performing of the London Metal Exchange (LME)'s six base metals. At current levels, as much as 60% of the global production base is unprofitable and, if commercial rationale were to prevail, a significant part of this overcapacity should be closed. Instead, the supply response has been slow, boosting inventories.

Impacts

• Low nickel prices will bolster the market share of austenitic stainless steel to the detriment of low-nickel alternatives.
• Lianyungang, China's leading port for nickel ore, will not be able to replace Indonesian volumes with imports from the Philippines.
• The uptick in merchant premia charged above the LME price in the European and US markets points to near-term stabilisation.