Open The Door

Richard (Rick) Mills
Ahead of the Herd

Page 1 of 3

As a general rule, the most successful man in life is the man who has the best information

Nickel is present in over 3000 different alloys that are used in over 300,000 products for consumer, industrial, military, transport/aerospace, marine and architectural applications.

Nickel’s biggest use, about 65 percent, is in alloying – particularly with chromium and other metals to produce stainless and heat-resisting steels. Its primary function is to stabilize the austenitic (face-centered cubic crystal) structure of the steel. Normal carbon steel will, on cooling, transform from an austenite structure to a mixture of ferrite and cementite. When added to stainless steel nickel stops this transformation keeping the material fully austenite on cooling. Austenitic stainless steels have high ductility, low yield stress and high tensile strength when compared to carbon steel – aluminum and copper are examples of other metals with the austenitic structure.

Another 20 percent is used in other steels, non-ferrous alloys (mixed with metals other than steel) and super alloys (metal mixtures designed to withstand extremely high temperatures and/or pressures or have high electrical conductivity) often for highly specialized industrial, aerospace and military applications.

About nine percent is used in plating to slow down corrosion and six percent for other uses, including coins, electronics, in batteries for portable equipment and hybrid cars, as a catalyst for certain chemical reactions and as a colorant – nickel is added to glass to give it a green color. In many of these applications there is no substitute for nickel without reducing performance or increasing cost.

Opportunity is knocking

Many analysts are saying the nickel market is over supplied and London Metal Exchange warehouses are seemingly reaching record levels every day. The nickel story is dead and buried, move on and make your money elsewhere…right?

Wrong.

Here at aheadoftheherd.com we KNOW the nickel story is alive and well and just getting started. Nickel is presenting a huge profit opportunity in this author’s opinion.

Read on to find out why.

Action & Reaction

Indonesia’s President Yudhoyono prohibited ore exports from Southeast Asia’s largest economy in January. Yudhoyono is betting that investment and higher prices will more than offset job cuts and lost revenue from unprocessed ore shipments.

Nickel rallied as much as 56 percent on the ban, climbing to $21,625 a tonne in May.

The reaction was swift, money poured into the country…mostly Chinese investors planning to build at least 30 nickel smelters that will process about 20 million tons of ore when they start production – supposedly in 2017.

Nickel prices have severely come off their high and are currently below $17,000.00 a ton. Why?

Four factors are driving the price decline:

Investments in smelters, processing plants and accompanying infrastructure have reached a frantic US$4.9 billion so far this year. Indonesia’s Energy and Mineral Resources Ministry has categorically stated the ban on ore exports will remain in place as the curbs will spur as much as $13 billion more in investments by 2017. All political opposition parties are in full agreement.

“It’s important to maintain the policy. Investors have made it clear to the government that they don’t want any change in policy because it could damage all their investments and they would lose trust.” R. Sukhyar, director general of mineral and coal

The rise in high quality refined nickel LME stocks is important – it’s a widely followed metric that’s very misleading.

London Metal Exchange grade material accounts for just a third of the overall nickel market when scrap and other grades are taken into account.

The wider nickel market is tightening significantly.

Scrap nickel in Europe fetches 83 to 86 percent of the LME price, that’s up from 75 per cent at the start of the year. In Asia, scrap discounts are thought to be even narrower at 90 percent of the LME price.

The Philippines was preparing to implement a ban on exports of unprocessed minerals similar to Indonesia’s Mining Law of 2009 – as with Indonesia’s new law it will take several years before the Philippines new mining and export policy is ready to implement. A yes/no decision is expected within months.

In 2013 China’s nickel usage climbed by about seven percent to 1.77 million tonnes. How much of this growth was because the metal is use for financial purposes as well as being stockpiled by NPI producers ahead of the export ban is hard to tell.

Global stainless steel demand is a better tell. Increased Asian demand, a potential recovery start in Europe and a continuing recovery in the U.S. all point to increased nickel demand. Fastmarkets.com, in their Nickel Analysis and Forecast Q2 2014 expects nickel demand to have grown around eight percent over 2014 to around 1.91 million tonnes.

Nickel Pig Iron

Indonesian smelters might, in three years, again fill all or part of China’s current need for nickel.

The Philippines might, or might not have the answer.

In the meantime expect scrap to fill a huge part of the supply/demand gap and supplies to tighten considerably with all grades going higher in price as China burns through its, and the world’s, low grade inventory in a desperate race just to keep even with its current nickel pig iron (NPI is a low-grade ferro-nickel) demand.

London Metal Exchange grade material, the class-one nickel in their storage warehouses – full-plate cathode, cut cathode, briquettes and pellets – is not used in China for NPI production.

NPI production has not spread to other stainless steel producers. The main reasons why the use of NPI has not spread are:

Remember - Indonesian ore is the raw material for up to 30 per cent of global production of nickel, most of it heads to China to be processed into nickel pig iron.