A commodity fraud at China's Qingdao port has hit bank financing of metal deals, sparking a surprise jump in nickel exports and pushing back expectations of a global supply shortage of the metal used mainly in stainless steel.
The Chinese exports have helped global stockpiles hit record highs, confounding expectations of a deficit as soon as next year that drove a spike in nickel prices after Indonesia enforced a ban on ore exports in January.
That was part of Indonesia's ambition to retain more of its mineral wealth by building a processing industry. Investors bet that Chinese stainless steel mills would run out of feed before Indonesia's industry reached full swing, putting a rocket under prices.
"The market got quite bullish. The reason they got bullish is still there. But now they are looking at all this metal coming out of financing deals," said analyst Lachlan Shaw of Commonwealth Bank of Australia in Melbourne.
"It doesn't change the reasons for the deficit next year -essentially the ferronickel sector in China not being able to access the ore because of Indonesia's export ban," he said.
China is the world's biggest consumer of nickel.
Its stainless steel mills relied on Indonesian ore to make nickel pig iron (NPI), a cheaper substitute for refined nickel, and the result of the export ban was a 50 percent jump in nickel prices by May.
But expectations of a global deficit by next year have been upended by the funding scandal at Qingdao port, after it emerged in June that companies had used fake receipts to obtain multiple loans secured against single cargoes of metal.