LME Nickel stocks at their highest since 1995
2009-06-08 12:10:00
No other base metal is in such a poor state fundamentally, besides perhaps aluminium, yet nickel has seen its price rise by as much as 39% since 1st April, to more than $14,000/t by 12th May; it has since corrected with the rest of the complex to $12,350/t as at 15th May, says a research report from Fortis Metals Monthly.
In our view, the high nickel price stands as testimony to the elevated sense of optimism that has seen base metals stage
remarkable rallies - with occasional corrections - over the past few months. It also serves as a warning as to what must come in the following few months in order to balance supply with demand, and that is price correction.
LME nickel stocks are at their highest since 1995 when the three-month price averaged $8,360/t. Today the price is almost $6,000t higher, although back in 1995 Chinese consumption was insignificant, while today China is the world's top consumer nation.
However, we are in the midst of the worst global recession in decades and the contraction in US and European consumption is likely to more than offset any growth in Chinese demand. In nickel’s favour is the volume of production that has been cut in 2009.
We estimate more than 310,000t of mined nickel has been removed in 2009 – the most as a proportion of total production in 2008 than any other base metal; while new supply that was previously scheduled to come online in 2009 will likely be delayed for the most part. We therefore expect mined nickel production to decline almost 9% in 2009, while demand falls by almost 10%, resulting in a surplus of 70,000t.
It may be more, if demand stays as low as it has so far this year, or it may decline should miners make further cuts and closures.
According to Acerinox, the world's largest stainless steel producer (stainless steel accounts for about two-thirds of nickel offtake), demand should recover in Q3 2009, but in our view it is not likely to recover until early 2010.
Nickel Outlook
The nickel price has overshot after tracking the rise in the copper price. There is no fundamental reason for this besides the misleading rise in Chinese refined nickel imports, which in our view do no more than highlight the premium between Chinese nickel prices and the LME price, and also perhaps some restocking. We are therefore sticking with the view that the price must come down.
This is even more likely given that we are heading into the traditionally quiet summer months. Short-term LME three-month price: $11,250/t-$14,500/t.
AI
