Nickel prices tumbled during September and into early October as the rally that had sent prices skyrocketing since June began to peter out. Three-month prices on the London Metal Exchange fell from a recent peak of US$12,380/t on September 4 to close at US$10,615/t on October 4. Volatility continued to intensify, averaging 32.1% in September compared with 26.6% in August and 24.8% in July (3-month LME implied).
On the supply side, Chinese imports of nickel ores and concentrate remain strong, despite ongoing uncertainty in the Philippines. The newly confirmed environment minister has yet to decide on whether to uphold the mine closures recommended by his predecessor. However, his confirmation by Congress seems to have been taken by the market as supply-positive and price negative.
Meanwhile, exports from Indonesia have been booming, augmenting the healthy supply picture and exerting downward pressure on prices. Stainless steel output in China has remained strong, despite sizable inventories already sitting with producers. Resilient stainless steel prices have incentivized production, and as yet, the stainless sector has felt minimal impact from the government's crackdown on excess steel capacity. We are maintaining our forecast for 3-month LME prices to average US$10,515/t in the fourth quarter, which is slightly below prevailing levels. We anticipate more weakness over the coming weeks as nickel's healthy supply picture is more fully taken into account. However, prices should gradually improve as we head into 2018, on the back of resilient demand and, potentially, some sizable supply cutbacks among large western producers.
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