China's bonded nickel premiums surge on creeping shortage

China's bonded nickel premiums surge on creeping shortageJan 23, 2015 09:51 GMT   Source: Reuters 

Fri, 23 Jan 09:13:00 GMT   * China bonded premiums up to $105 from $25 Jan 7* Nickel may be next target of Chinese-based funds* China nickel import arbitrage turns positive
By Melanie Burton
MELBOURNE, Jan 23 (Reuters) - Premiums for bonded nickel in China have surged in January, an early warning signal of a shortage in raw feed for China's vast stainless steel industry.
The premium stood at $25 on Jan. 7 but is now more than four times that at $105, having risen $40 this week alone.
The rise in premiums, the cost users pay to get metal, is a flashing light for investors who tagged nickel as the metal most likely to outperform this year.
Indonesia banned ore exports last January, only for China to step up imports from the Philippines, but the monsoon season there since November has disrupted shipments.
China's producers used the ore in nickel pig iron , a cheaper substitute for refined nickel fed into stainless steel mills. But given the ore shortage, mills have been expected to turn back to refined nickel.
"It's fair to say the market is tightening and you're seeing inventories run down. A lot of it is from a seasonal fall in nickel ore exports from the Philippines, with nickel ore port stocks in China running down as a result," said analyst Ivan Szpakowski of Citi in Shanghai.
China's domestic nickel stores are low after a commodity fraud scandal last year hit bank financing of metal deals, sparking a surprise surge in exports, which jumped nearly 150 percent in 2014. [ID:nL3N0RX2B2]
"The reality is that today there is just not a lot there, so to get it, you have to bring it from overseas," Szpakowski said.
This has helped fuel a disparity between global and local prices. LME nickel prices fell along with a downdraft in copper and are now cheaper than local prices, fuelling January imports, traders said. These are expected to arrive in February and March.
However, throughout Asia, demand remained tepid, one physical nickel trader said, with plentiful stocks of refined metal. LME nickel stocks are sitting at record highs above 420,000 tonnes.
Rising LME stocks last year doused a searing nickel rally that saw prices surge by 50 percent from January to May.
LME nickel is trading at $14,735 a tonne, down 2.7 percent this year. A median poll of analyst forecast prices would average $20,177 a tonne this year.
But investors may be in for another wild ride. Chinese-based funds that triggered a rout in copper prices this month could have their sights set on nickel next, especially if Indonesian smelters ramp up quickly and avert a raw material shortage, sources said.
"Nickel will be $10,000 a tonne by the end of 2016," said a trader at a fund in Asia.

(Reporting by Melanie Burton; Editing by Alan Raybould)

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