If I was to speculate on what has been happening here, I'd come...

If I was to speculate on what has been happening here, I'd come up with the following:

- Traders/speculators/whoever have been trading nickel on borrowed money secured by nickel inventory
- The Lenders want the nickel inventory that is security/collateral for the loans lodged at the LME as a "trusted security holder" rather somewhere else to avoid any fiascos
- The loan terms require margin top ups if the nickel price goes down (i.e. more physical nickel security is required if the nickel price goes down to maintain the loan to value ratios)

So, the LME nickel inventories have been going up and Chinese stockpiles have been going down for 3 reasons:
1. For existing loans where the collateral is not in the LME, lenders are shifting their clients collateral out of other places into the more "trusted" LME. This has been a part of the long term trend on LME inventory increases, and
2. Lenders have been calling for more physical nickel security as margin top ups as the nickel price has been falling to maintain loan to valuation ratios. Therefore borrowers have to get more nickel, and to do this they buy/transfer from Chinese nickel stockpiles to the LME, therefore Chinese stockpiles go down and LME stockpiles go up, and
3. The nickel that is at the LME is "tied up" in loans and other arrangements, and is not being sold out of the LME at the current prices as it will require unwinding of out of the money hedges/loans etc. Therefore anyone who requires physical nickel for processing is buying it from the Chinese stockpiles and running them down instead.

I know that this is very general in nature, and its really just educated speculation on my part. Could be entirely different reasons here. Also, don't discount that the Chinese stockpiles could be wrong by a factor of 20%/50%/who knows%.

Do your own research and make your own decisions.