LME nickel price to rise 34% this year as market stays tight: Macquarie
By Elisabeth Behrmann
Last Update: 6:05 AM ET Mar 26, 2007
NOUMEA, New Caledonia (MarketWatch) -- Slow supply growth in the nickel
market will keep the market tight until 2010, with average 2007 prices forecast
to jump 34% on year and project delays remaining a key swing factor for the
market, Macquarie Commodities Analyst Jim Lennon said Monday.
Already the strongest performer on the London Metal Exchange in 2006, nickel
cash prices will again rise sharply to average $32,518 a metric ton during
2007, up from an average $24,271/ton last year, Lennon told delegates at the
Informa Australia nickel conference in New Caledonia.
The nickel-rich French territory in the South Pacific is home to key
development projects Goro Nickel, owned by Companhia Vale do Rio Doce Koniambo
project. Nickel is mainly used to produce stainless steel.
Delays at Goro and BHP Billiton Ltd.'s Ravensthorpe project in Australia have
been key drivers in nickel's meteoric price rise.
Following a large deficit of 51,000 tons in 2006, the market will move to a
small surplus of 7,000 tons this year, but stronger demand growth of 7.4%
during 2008 will absorb growth of 7.3% in output, keeping the market tight,
Lennon said.
Consumption growth will slow to 2.9% in 2007, down from 11.9% last year but
is expected to rebound again to 7.4% in 2008.
While nickel's outlook points to "higher prices for a lot longer," Chinese
production of nickel containing pig iron represented a "wild card" in nickel's
supply and demand fundamentals, Lennon said.
Innovative nickel production from very low grade ore mainly from the
Philippines added around 30,000 tons to the global balance last year and is
likely to rise to 50,000-60,000 tons in 2007, analysts say.
A slowdown in stainless steel growth could also offer some short-term relief
for the market, Lennon said, but he warned that Chinese demand might be "even
stronger than we assume - as it always is."
Chinese stainless steel production totaled 5.23 million tons in 2006, up
59.2% on year and forecast to grow another 40.7% this year.
But there might be signs of slowing stainless steel demand growth, such as
high inventories in the U.S. and southern Europe and a rise in Chinese
stainless exports, with global indicators pointing to growth of 2.2% this year,
following a sharp rebound of 15.9% in 2006.
"The 30% plus rise in stainless production in the second half of 2006 cannot
reflect underlying real consumption, even after allowing for restocking,"
Lennon said.
But demand growth will also accelerate to an average of 5.5% between
2006-2011, on the back of urbanization and building of infrastructure in India,
China and other developed countries, and possibly Africa "unleashing huge
pent-up demand," Lennon said.
High prices will encourage scrap use and use of lower-quality stainless
steels with a lower nickel content.
"Total nickel demand would have grown 4.8% a year and not 3.6% a year if not
for the nickel shortage," he added.
-Edited by George Bernard
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