Nickel: Big drop expected for 2008 prices as world market goes into surplus
By Tom Stundza -- Purchasing, 11/15/2007 7:00:00 AM
Analysts at ABN Amro bank in London see nickel prices unwinding after a blistering rally that started in 2001, with the market staying in surplus around 100,000 metric tons. Despite relentless Chinese stainless steel production growth, the rest of the world is looking to reduce production of the chief nickel-consuming metal in 2008. So, the bullish price sentiment had soured
The world market for nickel is expected to be in a 120,000-metric-ton surplus this year, the International Nickel Study Group has forecast. The glut is expected to slide during 2008 to feed China's stainless steel industry but only to 100,000 tons.
World primary refined nickel production is estimated to increase to 1.47 million tons in 2007, and is forecast at 1.57 million tons in 2008, the study group suggests. Meanwhile, world primary nickel usage is estimated to decrease to 1.35 million metric tons in 2007, and is forecast at 1.47 million metric tons in 2008.
World nickel prices have averaged $17.67/lb through mid-October this year. However, a panel of 14 market researchers says the peak has come and gone so their most-recent full-year 2007 consensus average is closer to $14. The slippage in prices began at midyear when stainless steel producers slowed purchases had not been as strong worldwide as had been projected and nickel inventories had been overbuilt. Atop that, "some stainless steel producers began to delay their purchases of nickel this past summer in the expectation that prices would continue to fall," says analyst Rebecca McCallum at the Australian Bureau of Agricultural and Resource Economics (ABARE).
The 2006–2007 surge in nickel prices from the 2006 average of $6.66/lb has been traced to stainless steel production growth of 16.7% in 2006 and continued Chinese expansion in stainless steel production—a booming 25% growth this year, according to the International Stainless Steel Forum—and underinvestment in new capacities.
Looking ahead, the slippage in economic growth in North America and Western Europe in 2008—and possible cutbacks in stainless steel output in China to cool an overheated metals economy—may cut nickel prices by as much as 25%, according to various new forecasts. "The lower nickel price reflects an increase in world stocks as supply growth exceeds demand growth," says McCallum in a new Abare commodities report. "However, nickel prices are forecast to remain high historically as demand for stainless steel remains strong"—in the area of 16 million metric tons worldwide.
Note that several analysts appear to be adjusting their forecasts for next year, based on the now-expected surplus, so that the early average forecast of $13.80 now is too pricey. J.P. Morgan Securities' nonferrous analysts in London, for example, now have a 2008 forecast for nickel of $12.48/lb. The expected nickel price drop is what David Thurtell, an analyst at BNP Paribas Bank in London calls "a fair acceleration in production already underway."
Thurtell said in a recent report "the Chinese are making lots of nickel pig iron, though they are changing suppliers from the Philippines to Indonesia and New Caledonia, where the ore is a better grade and not as pollution-causing."
Antaike Information Development, the Chinese mining and metals information firm, tells a recent Non-Ferrous Mining Forum in Beijing that nickel market moving to oversupply in the near-term from rising nickel pig iron production in Asia and longer-term from traditional nickel laterite-ore capacity additions.
Going back to stainless demand, Thurtell also notes that "there has been a fair amount of demand destruction over the past year, with lots of substitution towards low grade stainless steel or no-nickel stainless steel." Purchasing has noted in recent months that increased use of low-or no-nickel steels has continued to erode the market share of nickel-bearing 300-series stainless grades, the workhorse of the industry.
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