The global nickel market is showing little sign of any recovery in the second half of the year, according to Citi metal analyst David Wilson.
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"Macro issues such as dollar strength combined with China concerns, have indeed impacted the base metals complex eroding momentum from the expected second half 2015 recovery story," Wilson said in a note to clients Tuesday.
He said that nickel has also been impacted over the last week by uncertainty over the solidity of the Indonesian ore export ban, prompted by tweets from the government's coordinating economic minister.
However, on September 7 Sudirman Said, minister of energy and mineral resources, categorically confirmed the country's ban on nickel ore exports would stay in place.
"This is of little surprise to us, given that much of the investment in Indonesian nickel pig iron (NPI) and refined nickel capacity is predicated on the ban remaining firmly in place," Wilson said.
He added that there are still headwinds for nickel that are likely to prevent any price improvement before the beginning of 2016.
Wilson said that LME inventories still remain at high levels -- up around 9.4% or 38,800 mt since the start of the year.
He also noted that while China has imported substantially more refined nickel and ferronickel this year, China appears to be importing a lot of off-grade nickel and not yet turning to LME as material source.
"Given China import trends so far this year, we believe such draws [of LME nickel] may now not occur until into 2016," Wilson said.
In addition, nickel's recent weak price performance means that any chance of a post-summer restock by stainless steel consumers is highly unlikely.
"The dramatic downtrend in nickel prices in late August suggests to us that stainless consumers will see little benefit of changing their hand-to-mouth buying patterns prevalent over the last 12 months, pointing to little in the way of demand-side price support over the rest of the quarter," he said.
However, perhaps one positive for nickel is that at current price levels around 65% of global capacity is under water.
"Given how far prices are cutting into the cost curve, the question of cuts is increasingly a case of 'when' not 'if' in our view," Wilson said.
Three-months nickel was trading at $9,890/mt on LMEselect at 0810 GMT Tuesday, down from a year high of $15,677/mt in January.
--Greg Smart, firstname.lastname@example.org
--Edited by Alisdair Bowles, email@example.com