Why nickel prices surging higher is negative for dry bulk vessels

Market Realist

Why we're seeing mixed signals for dry bulk shippers like Navios (Part 8 of 11)

(Continued from Part 7)

Nickel price

Since Indonesia banned exports of its nickel ore to any other country in an effort to increase domestic processing, nickel prices at LME (the London Metal Exchange) have gone from $13,500 per metric tonne to as high as $17,372 per metric tonne over the past three months—an increase of 28%.

Although nickel ore exports from Indonesia aren’t as large as its iron ore, coal, and grain, even a slight difference in fleet utilization can have a significant impact on rates for dry bulk vessels, which are used to carry dry bulks across the ocean. This, in turn, will affect market sentiment for the Guggenheim Shipping ETF (SEA) and dry bulk shipping companies such as Diana Shipping Inc. (DSX), Navios Maritime Holdings (NM), Safe Bulkers Inc. (SB), and DryShips Inc. (DRYS).

A worsening shortage

While Chinese firms may be rushing to build plants to further process Indonesia’s laterite nickel ore for exports, the timing remains a question mark. There’s been little news about this undertaking since the start of the year. The recent increase in nickel, in part also driven by tensions between Ukraine and Russia, suggests rising shortages.

What if China doesn’t find other buyers?

We could say that China will increase its imports of pure nickel from other countries to produce stainless steel, thereby pushing dry bulk shippers’ voyage durations longer and rates higher. However, Indonesia’s laterite nickel ore is said to be used in China to produce nickel pig iron, a cheaper way to make stainless steel compared to using pure nickel. If China can’t afford to import pure nickel to produce stainless steel, rates for dry bulk vessels will continue to be negatively affected. In part, this is already reflected in the Baltic Dry Index’s weakness. But continued weakness isn’t a positive either.

Continue to Part 9

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