Biggest Chinese nickel producer says bull market just beginning

[SINGAPORE] Nickel's rally is only just getting started, making the metal an attractive bet for investors, according to Jinchuan Group, China's biggest producer of the refined metal.

Tightening global supplies because of a mining clampdown in the Philippines and rising demand from the stainless steel industry in China will push prices higher even after they climbed 35 per cent from February lows, Chairman Yang Zhiqiang wrote in a statement on the company's website. China consumes about half of the world's supply and the Philippines produces a fifth of it.

"Nickel's advance is just the beginning of a long bull run, with current prices still around multi-year lows, making the metal a promising investment," Mr Yang wrote. The market will see shortages every year through 2020, with the deficit at 65,000 metric tons this year, Mr Yang said, citing company data. Low prices have hurt most global producers and forced some mines and smelters to shutter, he said in the statement Wednesday.

While prices climbed to the highest in a year this month and traded at US$10,285 a ton on Wednesday, they are still about 80 per cent below the record of more than US$50,000 in 2007. Goldman Sachs Group Inc and UBS Group AG also expect prices to advance as mines close in the Philippines because of the environmental crackdown by President Rodrigo Duterte.

Mr Duterte, who took office on June 30, and Environment & Natural Resources Secretary Gina Lopez want to ensure all mines comply with environmental and welfare standards, and so far eight nickel ore mines have been suspended. UBS estimated these account for about 10 per cent of the country's nickel output, or 2 per cent of worldwide supply, according to an Aug 12 report. A nationwide audit is scheduled for completion by the end of the month.

After prices sank more than 40 per cent last year, producers led by Jinchuan pledged to reduce supply by at least 20 per cent in 2016, and output in China is expected to drop to 550,000 tons this year, Mr Yang said. China is also cracking down on pollution in the nickel pig iron industry and utilization rates at smelters in the provinces of Shandong, Inner Mongolia and Jiangsu are at 30 per cent, Mr Yang said.

Japan's top nickel supplier, Sumitomo Metal Mining Co, sees more supply from Indonesia helping to ease the impact of Philippine supply cuts. Global output will trail demand by 47,000 tons this year, Masanori Ohyama, general manager at the nickel sales and raw materials department, said in an interview last month. In May, the company forecast a shortage of 80,000 tons.

Indonesia banned exports of raw mineral ores in 2014 to encourage the development of a domestic processing industry. The country may produce about 88,000 tons of nickel pig iron this year, up from an earlier forecast of 45,000 tons and last year's 25,000 tons, according to Mr Ohyama. Nickel pig iron normally has about 10 per cent metal content.

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