http://www.metalsinsider.com/WIR/ni050207.htm
<http://www.metalsinsider.com/WIR/ni050207.htm> <http://www.metalsinsider.com/WIR/ni050207.htm#> * Get MI FREE here!* <http://www.metalsinsider.com/getmifree> x *MI WEEK IN REVIEW: Nickel underpinned by falling stocks and tightness * ** Metals Insider - 06 February 2007 *MI WEEK IN REVIEW: * LME nickel had a volatile week (again), bouncing back aggressively from any sell-offs. Somewhere in the mix were the last-minute labour deal clinched by Xstrata Nickel at its Sudbury division, whispers on the London "street" about a hedge fund short and the Friday speculation about the Red Kite hedge fund that washed over the entire LME metals complex (see our copper and zinc reviews for more on that). Nickel's intraday moves were often wild but the end-week close at $37,400 wasn't, a mild week-to-week set-back of $700, or 1.8%, after two weeks of much stronger gains. *Desperately Seeking Nickel * We'll leave all the hedge fund speculation to one side because the essence of this market continues to lie in the perilously low LME stocks and the resulting impact on the market structure. ** LME stocks hit a fresh cycle low of 3,222t on Thursday and stayed there on Friday. Open tonnage, which is the ultimate liquidity base of the LME contract, is still some way off the crisis levels of last August, when the LME intervened to limit the daily backwardation, but with fresh arrivals conspicuous by their absence and cancellations still coming through, there is an ominous feel about the market. The full benchmark cash-3-months period ended the week valued at $3,175 backwardation, little changed from $3,225 the previous week. The tom/next spread, which is the shortest-dated in the LME system and the best indicator of cash date tightness, was this morning being quoted at a $100-150 backwardation range. That sort of backwardation is a major disincentive to go short for all but the most adventurous, while trade shorts trying to buy back seem to be lurking on any price dips. The strength of nickel's price performance has confounded many analysts and many producers, who must now seek to try and manage their exposure against a background of perilously low visible inventory. For example, French producer E ** ramet last week revealed it is hedged on 40% of its 2007 production at an average price of $19,000 per tonne (ouch!). Eramet also underlined nickel's problematic supply-side issues. After losing some 6,000t at its Doniambo smelter in New Caledonia from last year's general strike, it warned that production this year would also be constrained by the depletion of ore stockpiles it was forced to live off during the protracted industrial unrest. Deliveries will be some 2,000t lower still, as it also re-stocks with product. Indonesia 's Antam also gave a conservative production foreca ** st for this year, citing planned maintenance work and some uncertainty as to whether its new FeNi III smelter will perform better than it did last year. In Australia Consolidated Minerals cut its nickel production forecast due to ore-grade variability at one of its Kambalda mines, while European Nickel said it is still waiting a key permit to begin wholesale work on its new Caldag project in Turkey . With big projects such as Ravensthorpe and Goro pushed back into next year, the market can ill afford more delays to the likes of Caldag. ** *Changing Stainless Dynamics * With the supply-side constrained, the biggest influence on nickel's underlying fundamental dynamics looks set to come from the demand side, particularly the shifts in the stainless market. Outokumpu was the first of the big stainless steel producers to report its financials last week and after a sustained period of high profits, strong demand and order backlogs, it gave a much more sober assessment of the likely state of the stainless market after the end of the first quarter. ** That ties in with increasingly strident warnings from the likes of UK analysts MEPS that the stainless boom is fast running out of momentum, particularly in Western World countries which have been hit by a flood of cheap Asian exports. Outokumpu also underlined the tectonic shift underway in the stainless sector by announcing the replacement of one of the lines at its flagship Tornio works in Finland . While overall capacity will be boosted, a key part of the investment will be the future flexibility to shift production away from nickel-intensive grades towards low-nickel grades of stainless. This has been happening a lot in developing countries such as India and China and its cumulative effect is still relatively subdued. However, the impact of the stainless supply chain returning to normal stock levels will not be so subdued as and when it happens. In the interim, though, LME short position holders still have to battle with low stock levels and rampant backwardations. Today's LME report on Friday's activity in the warehouse system showed the last open tonnage in Europe being cancelled. That means that the only "visible" parcel of metal in the region is the submerged 160t of cargo on the stricken "Napoli" on the south coast of the UK (see Platts item below). One day we'll see metal turn up in LME warehouses in Europe again. But when? *Weekly Metals Analysis * 5 th February 2007 Sucden Research Tel: +44 (0)20 7940 9415 Fax: +44 (0)20 7940 9500 [EMAIL PROTECTED] www.sucden.co.uk ** **** *Nickel *** ** *Analysis – trending higher * *Weekly Change: -700 (-1.84%) *** All prices are from the previous business day's close . ** *Pivot: TL4 * *Preference : *Nickel slipped lower at the start of the week, but then reversed some of these losses and managed to close back above TL2 and the 10 day MA. We expect more gains this week as along as the short term uptrend TL4 holds, with resistance at 39000. *Alternative: *In the short term, a sustained close back below TL4 and the 10 day MA would suggest another correction lower after recent gains. **In the longer term, a sustained move under TL1 would potentially indicate a larger pullback, with support at 30300 and then 28600. The maximum retracement of the move higher from 17000 to 35100 is at 23904. On the upside, a sustained close above 39000 would signal a continuation of the move higher. *(Andrey Kryuchenkov, Analyst, Sucden Research) * Sucden (UK) Limited is authorised and regulated by the Financial Services Authority. The information in this report is provided solely for informational purposes and should not be regarded as a recommendation to buy, sell or otherwise deal in any particular investment. Private customers should not invest in these products unless they are satisfied that the products are suitable for them and they have sought professional advice. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy. The information may have been acted upon by us for our own purposes and has not been procured for the exclusive benefit of customers. **
