The monumental 15% fall in nickel prices on Monday has probably left many observers wondering what on earth is going on in the nickel market. What can consumers expect regarding pricing going forward? In reality, Monday’s crash, followed by a small rally to leave the metal 11% down on the day, came as result of long positions built up in late December being unwound. The positions were built up in expectation that nickel would benefit from the DJ-AIG Commodity Index’s New Year re-weighting. By January 6, three-month prices had bounced to $13,500/tonne, a 36% gain in just five trading days!
However once the re-weighting settled, and reality set back in, one glance at the stock levels brought the markets back to earth with a bump. Nickel started the new year with LME stocks of over 78k tons (double a year ago) and with stainless steel capacity tightened around the world, in the face of current and predicted weakness, nickel stock levels will continue to rise. Stainless capacity utilization in North America and Europe at just 50-70%, remains depressed, this after capacity came off stream by some 30% worldwide. End-users and service centers have continued to run down inventories buying only what they need for guaranteed consumption.
Nickel producers have responded with production cuts of up to 20% but with Chinese producers like Jinchuan Group bucking the trend and actually increasing production, it seems total cuts will not bring the global market back into a demand/supply balance this year.
Though some analysts are predicting nickel at over $14,500/metric ton this year we don’t see it. The market, in significant oversupply and with demand likely to drop further before any improvement later in the year, will remain depressed. Any boost in stainless demand will only rely upon nickel stocks already widely available. The floor, at approximately $9,000 per ton set in December, may trade in the range of $10,000 to 11,500/ton. Our advice – buy on the dips. Anything below $10,000 may represent a good buy but we would not recommend locking at that price too far out. We believe all of the bad news, at least for the first half of 2009, has not come out yet. With manufacturers own sales predictions uncertain, the last thing any sourcing professional needs, a long position in raw materials, may appear expensive if markets take a turn for the worse.
–Stuart Burns and Lisa Reisman
Editor’s Note: We will continue our 2009 price predictions over the next two weeks.