Nickel has fallen by more than half since April 2007 due to falling demand for stainless steel. With announcements of further cut backs in China and Korea and Steel Business Briefings recent survey suggesting 44% of European buyers expect demand to drop further in the 3rd quarter the future is not looking bright for nickel.
However, when the news is all one way, it may be time to look for the turn and indeed there are a number of indications that the fall may have gone too far. Much of the production now appears to have been adjusted to meet current demand and the Chinese cuts were in fact deferred expansion plans rather than true cuts. Chinese purchases are running at almost double last year and there are a number of potential supply side disruptions in the form of energy shortages in South Africa and Australia, plus rising production costs due to coal that may persuade some marginal producers to cut back nickel production at current price levels.
Although the market appears well stocked with LME inventories at around 5-6 weeks of demand, the current feeling is the market has fallen about as far as it is likely to go. With the LME at marginally above $20,000 last week, support at that level will be a crucial test of the bottom.
Our thanks to Standard Bank’s Quarterly analysis report for some helpful insight.