Material Matters: Nickel, LNG & Land Reforms

Commodities | Nov 06 2019

A glance through the latest expert views and predictions about commodities. Base metals; nickel; LNG; and China's land reforms.

-Price risk for nickel veering to the upside
-Storage capacity approaching full for LNG, oversupply evident
-Steel consumption likely to remain strong in China


By Eva Brocklehurst

Base Metals

Those surveyed at Macquarie's London Metal Exchange (LME) base metals summit remain bearish, awaiting a macro recovery. Nickel has been the one metal to outperform in 2019, up 50% largely because of an Indonesian export ban. The most favoured long positions are in copper and nickel.

The preference for long copper positions centres on import-based demand growth in China, which is expected to remain strong amid insufficient mine supply. Around half of those surveyed anticipated that a slowdown in global demand growth would be a key factor in the price of copper falling below the US$6000/t level.

The most popular short positions are in zinc and aluminium although Macquarie notes nickel is also popular in this regard, a rare preferred long and short commodity. Even so, preferences for nickel are largely bullish. Including the very bullish participants, Macquarie calculates 57% of the survey envisages some upside to the current nickel price.

The preference for short positions in zinc is largely based on expectations for weaker demand growth while aluminium is swinging on a rapidly-changing production cost outlook. At present, with aluminium spot prices at US$1730/t, expectations are balanced.


UBS agrees the nickel price is being supported by anxiety regarding supply. The ore export ban by Indonesia without any offset would lead to a temporary loss of -200,000tpa or around -8% of global supply.

The broker suggests the risk is mostly priced into nickel and nickel equities and maintains a forecast for a US$7.50/lb price. Indonesia's exports of nickel pig iron were up 36% in the year to the end of October and around 200,000tpa of smelting capacity is being commissioned over 2019.

The price risk lies to the upside from shifting policy and the consolidation of metal inventory, UBS suspects. Nickel inventory on the LME has halved amid a view that nickel supply will be tight in 2020.

This large decline in inventory could lift the supply anxiety and the broker observes stainless steel production in China has accelerated to record highs, although stainless steel inventory has also doubled. Outside of China stainless steel production is contracting.


Production of LNG in September was marginally lower, declining in Africa, Asia and Europe. JPMorgan notes a significant reduction in Asian exports, indicating gas could be withheld for the domestic market ahead of the northern winter.

Spot LNG prices in Singapore, up 30%, also increased sharply and the broker believes this is likely reflects rising European demand.

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