Goldman Sees Nickel Rally Following a Drop in Pig Iron

Nickel prices in London may advance on slower stockpile builds as output of a lower-grade alternative drops in the coming months, according to Goldman Sachs Group Inc.

Nickel pig iron output cuts are likely at current prices and could balance the market, the bank’s analysts including Max Layton and Roger Yuan wrote in a report dated yesterday. The Philippine monsoon season will cut supply, boosting ore prices and the production cost of nickel pig iron, or NPI, through February, according to the analysts.

“A slowdown in LME nickel stock builds is likely to be necessary to see nickel rally significantly from current prices,” the bank said in the report. “We expect this will occur as NPI production cuts feed through, and as we believe China’s destocking is nearing an end.”

Nickel slid into a bear market this year as London Metal Exchange stockpiles surged 45 percent to a record. The metal for delivery in three months on the LME slumped 0.5 percent to $14,716 a metric ton at 12:42 p.m. in Tokyo, falling for the seventh day and extending its longest losing streak since November 2013.

About 70,000 tons a year of China’s NPI capacity may be shut in order to reduce pollution in the lead up to the Asia-Pacific Economic Cooperation meeting in Beijing that starts Nov. 10, the analysts said in the report. NPI represents 25 percent of global refined supply, according to Goldman Sachs. The Philippines has ramped up ore shipments to China after Indonesia, the top nickel producer from mines, started a ban on unprocessed ore exports in January.

Philippine Ore

During the first nine months of the year, the Philippines exported 27.1 million tons of nickel ore to China, according to China’s customs data. The average grade of the ore exports is estimated at 1.2 percent nickel, JPMorgan Chase & Co. said in an Oct. 24 report.

The quality of supplies from the Philippines will probably increase next year and into 2016 as miners produce an increasing share of higher-grade ore, according to JPMorgan analysts including Natasha Kaneva. China’s full-year imports from the country will rise 27 percent to 37.5 million tons in 2014 and remain at those levels through 2016, according to the bank.

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