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Jim Lennon, managing director of Red Door Research Ltd, analyses nickel's volatile price
Nickel is the mo st volatile ofthe LME metals. This is said to be due to relatively low use of the LME by industry users-based on the 'illiquidity argument', allowing funds to "rule the roost" - and also due to the fact that 70% of nickel is used to make stainless steel, where nickel accounts for 60% ofthe price - based on the 'industry speculation argument', meaning that violent destocking and restocking of stainless is induced when nickel prices move.
This year has definitely seen both sides ofthese volatility drivers in spades. As nickel prices rose by almost 60% from January to May, stainless steel orders soared and fund net longs did likewise; since May, prices have fallen by over 30% and many funds have deserted the market and stainless orders have collapsed.
The year started with the market in massive over-supply and prices so low that almost half the industry was losing cash. This changed dramatically on January 12, when the Indonesian government imposed a complete ban on exports of nickel o re. This was big news since around 25% ofprimary nickel supply was made from Indonesian nickel ore in 2013.
The bantookthe market by storm despite recordlevels ofLME stocks, with large stocks of nickel ore built up in Chinese ports ahead of the ban,...