View Full Version : Nickel takes precious turn

Ardent Listener
19th January 2007, 21:22
Nickel takes precious turn

Friday, January 19, 2007

Nickel became the first base metal to break US$1 (HK$7.80) an ounce as futures prices surged to a record high this week, and analysts said they see further gains in the near term.
Nickel futures for delivery in three months on the London Metal Exchange have doubled in the past 12 months, and hit a record US$35,700 a tonne Wednesday on low global stocks and supply disruptions at mines and smelters.

Breaking US$1 an ounce puts nickel, a key ingredient in stainless steel, in the company of more lustrous precious metals such as gold and silver that are typically quoted in units per ounce.

"You might not see nickel engagement rings and earrings, but prices are at an interesting threshold," Australia and New Zealand Bank analyst Andrew Harrington said.

"In the immediate future we will see continuing strong prices supported by low inventories.

"Also stainless-steel makers have been sitting to one side, waiting for prices to come down. That could be a very unsuccessful strategy."

Stainless-steel production uses about two-thirds of world nickel output, which ran at 1.34 million tonnes last year, according to the Reuters Metal Production Database.

Stocks of nickel in LME warehouses are 5,316 tonnes, of which 4,400 tonnes, a little more than one day's consumption, are available.

Stocks have fallen by nearly 20 percent this year and are 86 percent lower than at the start of 2006.

"There's a whole lot of uncertainty in the nickel market. It's a small market, demand is healthy and there is not enough supply coming through," said Michael Widmer, an analyst at Calyon.

He said while stainless-steel production growth would slow from last year, he still expected a 7.5 percent rise in output in 2007.

The latest surge in prices came after workers at Xstrata's nickel operations in Sudbury, Ontario, gave union leaders a strike mandate.

Workers at Sudbury, which produces about 60,000 tonnes of nickel annually, have a long history of taking industrial action for better pay, having walked out before settling the last three contracts.

"This is all about the Sudbury strike mandate vote. If they don't reach agreement it could go higher," one LME dealer said.

Other supply problems include delays and cost over-runs at projects in Australia and New Caledonia and strikes at major producers.

The dealer added: "The nickel market is very precarious. There is almost no respite for consumers. Nickel is a relatively minor input in a huge product - stainless steel.

"A 100 percent rise in the cost of nickel results in only a small rise in the cost of a stainless steel sink, so people keep paying more."

Despite the near-term surge, prices are expected to ease during 2007 and into 2008 as new sources of metal are developed and consumers replace nickel with other metals. A poll of 41 analysts earlier this week forecast cash nickel to average US$26,448 a tonne this year and US$21,495 in 2008.

One possible source of new nickel supplies is pig iron.

Some steelmakers have been producing pig iron from nickel-containing ores.

The resulting metal, which contains about 4 percent nickel, is then used to make stainless steel.

As part of the base metals poll, Xu Aidong, an analyst at China's state-run consultancy, Antaike, said: "We saw a big increase this year of nickel pig iron made from low-grade ore and expect that supply to further increase next year."

Neil Buxton, analyst at GFMS Consulting, said: "A recurring theme of our research is that a constant stream of bullish news is required to keep prices at inflated levels and once this new flow dries up the downside potential is significant."

He added: "Although the surpluses that we are projecting for 2007 are small from an historical perspective, we believe that they will lead to a significant fall in prices."

The other threat to nickel comes from substitution.

Stainless steel is a blend of a number of metals, primarily iron, mixed with chrome, nickel, molybdenum and others.

For some applications, cheaper manganese and other metals can be used in place of nickel.

"These prices will raise the issue of substitution, and we have seen some work in that direction already," a second LME dealer said.

"It will be a question of how much it will cost to redesign products and change production lines."