| |
Where Will Nickel Go Next?
|
|
|
Looking Short, Looking Long
I love a good supply/demand story, so when I see a textbook chart like this one for nickel, it pretty much makes my day:
Looking at nickel since the beginning of the year, we can see LME stockpiles rising, and prices, for the most part falling — at least until the beginning of February. Then the story becomes a little curious: As LME stockpiles leveled out a bit, nickel's price skyrocketed. By the time LME stockpiles had begun to fall, nickel prices were already in such a huge climb that many industry followers were left scratching their heads, even as they bought nickel as fast as they could.
A recent Wall Street Journal article points to stockpile drawdowns by Stratton Metals Ltd., a private nickel dealer in London, as the catalyst for that large price jump in mid-February. And as the supply decrease coincided with the rise in prices, some analysts began to worry that nickel was getting tight, a fear which only served to further drive prices up.
Throughout the month of March, LME stockpiles have continued to drop. Still, we're nowhere near the levels seen this time two years ago, when the price of nickel was over $51,000 per metric ton. In fact, when you compare prices to LME stockpiles long term, you gain a bit more perspective:
As you can see, nickel supplies have been much tighter in the past; the last time nickel hit yesterday's closing price of $24,000/tonne, LME stockpiles were roughly one-quarter of what they are now.
So where does nickel go next? It all comes back to stainless steel.
The Outlook for Nickel: Supply and Demand
In 2009, roughly 1.28 million metric tons of nickel was produced globally, a figure which the International Nickel Study Group (INSG) forecasts to increase by 12.5% for this year, up to 1.44 million metric tonnes.
A good 65% of that nickel goes into making stainless steel (other alloys consume another 22%, while electroplating and chemical applications use up the remaining 8% and 5%, respectively). But the global economic downturn hasn't been kind to stainless steel producers or its users. As the economy weakened and struggled to recover, so too did all sources of nickel demand, and falling prices forced mining companies around the world to cutback or stop production.
In addition, the downturn meant that companies making finished stainless steel goods preferred to use up their existing company stockpiles, rather than purchase additional nickel in the market. In turn, this caused nickel stockpiles to grow, because the reduced amount of nickel still being mined was still more than needed. Much of the excess ended up in stockpiles in the latter half of 2008 and on into 2009.
But 2010, with its falling global stockpiles and rising prices, has demonstrated a different trend, and stainless steel demand is expected to grow. Forecasts from the International Stainless Steel Forum predict stainless steel demand to continue to increase through 2010:
China is expected to lead this demand recovery, as the country managed to grow its stainless steel output in 2009 by 26.8% year-over-year, even as global stainless steel production dropped 5.25%. Bonnie Liu, an analyst with Macquarie Bank Research is told Purchasing.com:
“China has been leading the recovery of the global stainless steel industry since the beginning of the year. Some major (stainless) steel mills in China are saying they cannot fufill their customers’ order book requirements for the next quarter due to the stronger demand from the domestic market, especially from the machinery, industrial and auto industries.”
Rising nickel prices – combined with positive economic data, such as increased consumer spending – have encouraged nickel producers worldwide to begin re-opening their mines. One such nickel mine in Zambia, moth-balled since the prices dropped in 2008/09, resumed output on March 26.
This is where predicting how nickel behaves next gets tricky. On the one hand, we have an apparent rise in Chinese stainless steel demand, and we know how hungry the Chinese have been lately are for all things commodities. At the same time, nickel stockpiles are at historically high levels, especially compared to prices, and additional supply from re-started mines could undermine the current sky-high prices.
Back in January, Reuters surveyed over forty companies on their predictions for nickel prices for 2010 and 2011, and as you can guess, they were all over the map. In the end, the median forecast for the average price of nickel in 2010 turned out to be $18,185 per metric ton. We're already well past that, but the prediction is something to keep in mind if you’re going to invest in nickel.
If you liked this article, then check out:
Hard Assets Investor
****
Disclaimer: The information provided here is based on data and research collected by www.hardassetsinvestor.com, and is intended solely for informational purposes. All views expressed in this article are those of the author, and may not reflect those of Kitco Inc. The information contained herein does not constitute investment advice, and nor should it be construed as a solicitation to trade any of the securities, commodities or other financial instruments named within. Kitco, Inc., www.hardassetsinvestor.com, and the author of this article do not accept any culpability for losses and/or damages arising from use of this article. Readers are advised to consult with a qualified registered securities adviser prior to making investment decisions.
|
