By Raul de Frutos
Our Stainless MMI fell to 52 from 54 in January. Nickel is hovering near 12-year lows. Not even a weaker dollar helped lift prices over the last month.
The US flat-rolled stainless mill base price increases announced last month will not even raise the net price due to falling values.
With prices at these low levels, it's estimated that 60-70% of the industry is underwater. Some might wonder, "why don't prices go up, then?"
As we've said before, markets don't care about how profitable producers are. They look at the supply/demand equation and while companies don't cut production: falling demand + constant/rising supply = falling prices.
Markets Move Prices
The main problem is that producers aren't throwing in the towel, hoping for demand to come back and lift prices. The only focus of nickel producers at this moment is to reduce production costs to be ready when prices come back up. The problem is that China is not recovering from its economic flu, and someone has to give in if the producers want to see higher prices.
A clear example is the construction of the Nova nickel mine in Australia. Starting production in December 2016, the mine is expected to deliver about 26,000 metric tons of nickel annually for the next 10 years and operate on a low-cost basis of around $3,500/mt, less than half the current price.
Vale Indonesia (OTCPK:PTNDY) is also continuing to reduce output costs to stay competitive. Its production was up 15% in the third quarter compared to the same period a year earlier. In Indonesia, six smelters are expected to start operations this year with a total capacity of 50,000 mt of pure nickel (or 500,000 mt of nickel pig iron).
Tsingshan Holding Group is expanding its processing plants in central Sulawesi, with a capacity of 90,000 mt of pure nickel. That alone is more than the 80,000 mt that eight Chinese nickel producers recently announced they were collectively cutting.
What This Means For Metal Buyers
Nickel prices are at low levels, but while production cuts aren't materializing, it's hard to imagine a meaningful price increase.