Metal Mining

Jul24 update: weaker nickel and tin price, despite tight ore supply

 

  • Tin price weakened in Jul24 despite a tight supply in China and declining inventory levels globally.
  • Nickel prices stabilized in Jul24. Yet, we remain cautious of further decline from weak seasonal demand.
  • We maintain our Overweight rating on the sector, with TINS and NCKL as our top picks due to their better earnings visibility.

 

Weakening Tin price despite limited supply

In Jun24, China’s tin ore imports surged to 12.8kt in June, +52% mom/-41% yoy, driven by stronger shipments from DRC (Congo). Yet, 1H24 imports still fell -20% yoy at 91.9kt due to reduced supply from Myanmar. Similarly, tin ingot imports hit a 2-year low of 189 tons, -70% mom/-92% yoy, bringing 6M24 imports down to 7.6kt, -48% yoy, as Indonesian private smelters faced constrained export quotas. At this juncture, we believe prices should remain strong, given that China’s primary tin ore suppliers in Myanmar and DRC are grappling with domestic challenges (Wa state and M23 rebels). Concurrently, robust demand is evident as exchange inventories (SHFE and LME) have notably decreased (-12%) over the past 2 weeks, despite a decline in tin prices (-16%) from their peak of US$35k/ton, implying strong end-user demand.

 

Shortage of nickel ore drives a higher cash cost

According to MEMR, the RKAB issuance of 240Mt of nickel ore has exceeded the current demand of 210Mt. Yet, since a significant portion of this was only issued in Jun24, we believe there are production lag, causing tightness in the market where ores are sold at a premium to the benchmark. Additionally, despite weather challenges delaying shipments, several smelters have increased imports from the Philippines. Nevertheless, ore prices saw a slight decline in Jul24 along with the decline in the LME nickel price, although the benchmark premium remains elevated.

 

Weaker fundamentals in Jul24 reflected in LME price

We noted a convergence between the NPI and LME price, as NPI rose by +2.3% MTD, whilst LME fell by -8.7% MTD. We believe the slight improvement in NPI price was driven by higher ore cost. However, as we enter the traditional off-season, we expect stainless steel demand to cool down, along with an eventual weakening of NPI. Hence, we reiterate our FY24E estimate of US$11.5k/ton. Meanwhile, LME price weakened whilst intermediate products (Sulfate and MHP) remained stable MTD, which we suspect is due to the increasing warrants in the LME bourse. In this scenario, nickel matte producers (INCO/MBMA) are most disadvantaged due to their payability towards LME.

 

Maintain Overweight on the sector with unchanged top pick of TINS

We anticipate a quieter nickel market in 2H24 as we enter the off-season for stainless steel. Thus, we expect the benchmark price to be rangebound 11.5-12k/ton with lower volatility. We maintain our Overweight rating on the sector, with pecking orders as follows: TINS > NCKL > MBMA > MDKA > ANTM > INCO.

 

… Read More 20240729 Metal Mining