It's been a record-breaking week for nickel, albeit not the kind to do much for this market's punchy bull narrative.
Tuesday saw the warranting of 19,578 tons of metal into
This was the largest ever single-day inflow of nickel into the LME system, smashing the previous record of 13,230 tons set in March this year.
And, thanks to that deluge of warranting, headline LME stocks of nickel hit an all-time high of 305,970 tons. It's a useful reminder that markets do not miraculously shift from surplus to deficit conditions at the flick of a switch.
While there is plenty of evidence that the global nickel market is steadily tightening thanks to the Indonesian ban on nickel ore exports, the process will be slowed by the legacy stocks that have accumulated over the past few years.
Some of which have just turned up in LME sheds.
Tuesday's stocks surge was split between three locations:
Stocks of the latter, by the way, now total 144 tons, which is the highest level of exchange inventory for this premium product since
There has been speculation that this record inflow was connected to the loss of appetite for collateral financing in
However, the geographical breakdown of the warranting, particularly the heavy activity at
More likely is that the Tuesday surge resulted from a physical delivery on the prime June prompt date by the large short position that had graced the LME's futures banding report for many weeks.
The net result of both stocks arrivals and re-warranting action is that LME open tonnage is also at a record high above 190,000 tons.
Unsurprisingly, this boost to the LME contract's physical liquidity pool has caused any lingering tightness at the front end of the LME curve to dissipate.
The benchmark cash-to-three-months period was valued at
The impact on outright prices has been more muted but after the excitement of mid-May, when three-month metal hit a 27-month high of
out of the nickel market anyway.
The price has gone into drift mode since late last month and is currently trading around
That's because a lot of the hot investment money has also departed with volumes and market open interest markedly declining. The latter has fallen from close to 320,000 lots at the height of the May mayhem to just under 290,000 lots, taking it back to early-April levels.
This is all part and parcel of the current trading climate on the LME. Lacking a unifying theme, speculative money is playing the divergence game via relative-value trades between
metals or the occasional "all-aboard" rush into the next hot thing.
Nickel, it seems, has dropped out of vogue in favor of zinc, this month's hot market, with the zinc price hitting a 16-month high.
Not that nickel's bull story has gone away.
The impact is already clear to see in the monthly statistical updates from the
The global refined market is still assessed as being in surplus, but only just.
The most recent INSG bulletin, covering the month of April, pegs that month's surplus at just 1,900 tons. The cumulative January-April surplus has shrunk to 12,550 tons from 51,040 tons in the same period of last year.
All of which supports a consensus view that the trickle-down effect of the ore ban on Chinese NPI production is now starting to happen.
Here too, though, stocks of nickel ore at Chinese ports are slowing the process.
And even once those are drawn down, legacy stocks of refined metal will slow the translation of statistical supply-usage deficit into commercial market deficit.
But the process looks, for now at least, unstoppable, barring an unlikely volte-face by the Indonesian authorities.
And there are still plenty of bulls betting on nickel's upside. It's just that they're doing so by buying call options, a part of the market where both open interest and price targets are still rising.
At the end of April there were 200 lots of market open interest on the
yesterday there were 2,050 lots on the same strike. Moreover, the options "heat map" is warming up all the way up to that big number.
At some stage those options are going to act as a magnet on the price. But that will be the time when LME stock drawdowns rather than arrivals will be grabbing the headlines. Until then, there's always zinc!
(The opinions expressed here are those of the author, a columnist for Reuters.)
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