If you know why the price is the price it will enable you to perceive price direction, and that is our goal (predicting future price is a fool’s errand in our opinion). We believe demand relative to supply ultimately determines price and relevant demand vs supply information is essential. There are caveats to fundamentals determining price: Human Emotion; humans are not entirely rational beings. Herd anxieties have and will cause interim interruptions and influence prices upward or downward. Herd mentality causes price movements like an irrational animal stampede. Regarding Technical Analysis, we do not utilize technical analysis in our price direction model. Using the past to predict the future does not work for our purpose.
As mentioned previously there are 3 main influences on the Ni price, we have added a 4th: The China Effect; which is actually a morphed hybrid of Demand vs Supply and Human Emotion. China’s demand has been 40%+ of Al/Cu/Ni and 60% of seaborne Fe ore global production. Even minor consumption increases or decreases by China will affect global markets and Chinese speculators have caused drastic price movements.
We take a different approach to demand vs supply: Our focus is on demand; more importantly consumption compared to purchases. Prime example is China’s imports of industrial metals for shadow banking purposes. Ni is imported with letters of credit and warehouse receipts (rudukans in Chinese) issued. Importers have 6 months to borrow then reloan against receipts as many times as they can before Ni must be exported in order to avoid paying 17% VAT. How does imported and then exported Ni show up in China’s demand statistics because its never consumed? Another example is LME stocks being re-warranted or re-directed to unapproved warehouses but not consumed. Bottom line: If you don’t know how much of what has been bought has been consumed then difference is “overhanging the market”. When unconsumed nickel re-enters the market statistics are skewed.
Our demand and supply will focus on Indonesia’s production of 300 series S S (nominally 18Cr-8Ni) from saprolite grade laterite Ni ore and 200 series S S (nominally 17% Cr-4% Ni, from lower grade limonite laterite Ni ore . China has made large scale investments in Indonesia: Advanced rotary kilns, calciners, highly efficient multi-electrode submerged-arc continuous smelting furnaces and state of the art stainless steel mills with continuous casting.
Our reason for focusing on Class ll and not Class l is because austenitic S S consumes 66% of Ni produced annually and is produced from Class ll Ni; NPI in China. China produces over 50% of global S S annually; predominately from NPI and home scrap. As of 2017 China is organizing recycling of domestic S S crap and will use substantially more S S scrap going forward. Increased stainless steel scrap consumption will reduce need importation of Ni ore and decrease intrinsic cost of Ni. India, Euripean and American S S producers get approximately 70% of their Ni from scrap. Scrap Ni units are discounted from LME previous month average. We believe China’s Indonesian investment and presence will be the lowest the cost producers of Ni for S S.
Vale, Norilsk: two largest Class l Ni producers produce nickel to sell nickel. China produces Ni (primarily NPI) to produce austenitic stainless steel.