Nickel takes precious turn
Nickel became the first base metal to break US$1 (HK$7.80) an ounce as futures
prices surged to a record high this week, and analysts said they see further
gains in the near term.
//-->Friday, January 19, 2007
Nickel became the first base metal to break US$1 (HK$7.80) an ounce as futures
prices surged to a record high this week, and analysts said they see further
gains in the near term. Nickel futures for delivery in three months on the
London Metal Exchange have doubled in the past 12 months, and hit a record
US$35,700 a tonne Wednesday on low global stocks and supply disruptions at
mines and smelters. Breaking US$1 an ounce puts nickel, a key ingredient
in stainless steel, in the company of more lustrous precious metals such as
gold and silver that are typically quoted in units per ounce. "You might
not see nickel engagement rings and earrings, but prices are at an interesting
threshold," Australia and New Zealand Bank analyst Andrew Harrington said.
"In the immediate future we will see continuing strong prices supported by low
inventories. "Also stainless-steel makers have been sitting to one side,
waiting for prices to come down. That could be a very
unsuccessful strategy." Stainless-steel production uses about two-thirds
of world nickel output, which ran at 1.34 million tonnes last year, according
to the Reuters Metal Production Database. Stocks of nickel in LME
warehouses are 5,316 tonnes, of which 4,400 tonnes, a little more than one
day's consumption, are available. Stocks have fallen by nearly 20 percent
this year and are 86 percent lower than at the start of 2006. "There's a
whole lot of uncertainty in the nickel market. It's a small market, demand is
healthy and there is not enough supply coming through," said Michael Widmer, an
analyst at Calyon. He said while stainless-steel production growth would slow
from last year, he still expected a 7.5 percent rise in output in 2007. The
latest surge in prices came after workers at Xstrata's nickel operations in
Sudbury, Ontario, gave union leaders a strike mandate. Workers at Sudbury,
which produces about 60,000 tonnes of nickel annually, have a
long history of taking industrial action for better pay, having walked out
before settling the last three contracts. "This is all about the Sudbury
strike mandate vote. If they don't reach agreement it could go higher," one LME
dealer said. Other supply problems include delays and cost over-runs at
projects in Australia and New Caledonia and strikes at major producers. The
dealer added: "The nickel market is very precarious. There is almost no respite
for consumers. Nickel is a relatively minor input in a huge product - stainless
steel. "A 100 percent rise in the cost of nickel results in only a small rise
in the cost of a stainless steel sink, so people keep paying more." Despite
the near-term surge, prices are expected to ease during 2007 and into 2008 as
new sources of metal are developed and consumers replace nickel with other
metals. A poll of 41 analysts earlier this week forecast cash nickel to average
US$26,448 a tonne this year and US$21,495 in 2008.
One possible source of new nickel supplies is pig iron. Some steelmakers
have been producing pig iron from nickel-containing ores. The resulting
metal, which contains about 4 percent nickel, is then used to make stainless
steel. As part of the base metals poll, Xu Aidong, an analyst at China's
state-run consultancy, Antaike, said: "We saw a big increase this year of
nickel pig iron made from low-grade ore and expect that supply to further
increase next year." Neil Buxton, analyst at GFMS Consulting, said: "A
recurring theme of our research is that a constant stream of bullish news is
required to keep prices at inflated levels and once this new flow dries up the
downside potential is significant." He added: "Although the surpluses that we
are projecting for 2007 are small from an historical perspective, we believe
that they will lead to a significant fall in prices." The other threat to
nickel comes from substitution. Stainless steel is a blend of a number of
metals, primarily iron, mixed with chrome, nickel, molybdenum and others.
For some applications, cheaper manganese and other metals can be used in place
of nickel. "These prices will raise the issue of substitution, and we have
seen some work in that direction already," a second LME dealer said. "It will
be a question of how much it will cost to redesign products and change
production lines." REUTERS
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