Nickel Set to Rise on the Back of a Pick-Up in Stainless Demand

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Nickel suppliers are hoping to make hey while the sun shines or more to the point make profits while nickel demand remains strong. Off from an overdone peak of $27,000 per ton in the spring, nickel prices have picked up recently and physical premiums are robust on the back of limited supply and reasonably solid demand according to Platts. In a Reuters report both Acerinox and Outokumpo have gone on record as saying they expect third quarter stainless demand to be soft resulting in a fall of 10-20% in demand. For those like Outokumpo that have swung from loss to profit and back again over recent quarters, the third quarter will likely result in losses again. But demand is widely expected to pick up in the fourth quarter and with it nickel prices should see some further upside.

Stainless producers are engaged in cost reduction across their European operations, shaken by debt worries and slow growth. Acerinox is looking to cut US$170m a year from its global operations, for which read mostly European operations yet at the same time is investing twice as much in new production capacity in Malaysia. Their Bahru plant is looking to add 1m tons of capacity by 2020, starting with 240,000 tons during the first quarter of next year. Likewise, Outokumpu is focused on growth in India, the Middle East and South Africa rather than at home in Europe. Asian demand is where the growth is coming from and expectations of increased Asian demand coupled with an admittedly short term squeeze on supplies is what is driving nickel prices. It is also driving a draw down in nickel stockpiles at the London Metal Exchange, according to the Wall Street Journal, by 30% since February.

Lagging the rise in demand from stainless producers in Asia, nickel producers have been playing catch up bringing shelved mine and treatment facilities on stream delayed by the financial crisis. Vale SA expects to return to full production by the end of the month at its nickel mine in Sudbury, Ontario, following a prolonged strike this year and last. The Brazilian miner also aims to start production at a mine in New Caledonia by the end of this year, while First Quantum Minerals Ltd. says it has started hiring for a mine in Australia. Together, those two mines could add close to 100,000 metric tons to global production, equal to roughly 7% of expected 2010 demand. The swing producers in nickel supply have been Chinese domestic nickel pig iron producers but at current prices they will be slow to start up new production, as it is only marginally profitable at current prices. But with Chinese consumption predicted to continue to rise as stainless, alloys and plating use continues to grow it could be well into next year before the nickel market moves back into significant surplus again. For consumers looking to cover short term needs now seems like a good time to be covering for the next six months. Further out, increased supply should cap further price rises and even depress prices back below $20,000 per ton later in the year.

–Stuart Burns

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