Traders are moving nickel stockpiles from China to other Asian warehouses to capture hefty profits by delivering to the London Metal Exchange (LME).
At least 13,600 tonnes of refined nickel left bonded warehouses in China since last month, according to traders and logistic managers with knowledge of the matter.
The inventory is on its way to LME storage facilities in Taiwan, Malaysia and Singapore, said the people, who asked not to be identified as the information is private.
Merchants could earn between US$20 and US$50 a ton (0.9 tonnes) by purchasing nickel from China’s tax-free zones and delivering the metal to offset London contracts due this month and next month, they said.
The cash discount in the Chinese market, extreme backwardation on the LME and incentives offered by the warehouses make it a profitable trade, they added.
The metal that is set to reach LME warehouses is another example of the convulsions within the nickel market after Indonesia promised to ban raw-ore exports next year, unleashing a panic over possible shortages.
In the past month, about half of all the nickel in LME warehouses has been withdrawn and spot contracts have traded at the biggest premium to futures in 12 years, in a condition known as backwardation.
LME nickel was little changed at US$16,280 a ton on Friday and lost 7.2 percent this week.
Prices are still up 52 percent this year on concerns about a shortage.
The nickel supply squeeze could signal a “Hamanaka moment,” said Citigroup Inc analysts including Oliver Nugent.
That is a reference to the Sumitomo Corp trader who hoarded copper, driving up prices before the market collapsed in the 1990s.
The Citigroup report highlighted the disconnect between futures and physical markets.
The LME nickel contract is signaling an extreme shortage, while conditions in the physical market are looser.
That represents a “major downside risk” to prices given that global growth is starting to weaken, the bank said.
Spot gold on Friday settled at US$1,489 an ounce, up 0.5 percent from last week’s US$1,481.
Export sales of US pork last week soared to an all-time high as buyers stock up in anticipation of a widening protein gap created by the spread of African swine fever in Asia.
“They’re simply front-running the Chinese with everyone becoming fully aware of the demand wave about to hit,” Archer Financial Services Inc senior account executive Dennis Smith said in an e-mail.
Export sales jumped to 351,000 tonnes as Mexico and China each snapped up the biggest weekly hauls in US Department of Agriculture data going back to 2013.
China’s weekly purchases of 152,600 tonnes tops the previous record of 142,200 tonnes from just a week ago.
December hog futures in Chicago turned lower after earlier surging as much as 2.7 percent.
Additional reporting by staff writer
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