Nickel rationing may be needed in 2008
By Tom Stundza -- Purchasing, 3/28/2007 1:29:00 PM
Dwindling stockpiles of nickel and sustained strong demand from world stainless steelmakers could create a second year of alloying metal shortages and create the need for rationing of primary material next year to ensure supplies, according to the latest quarterly commodities review by investment bankers at Société Générale.
In a news report in Platt’s Metals Daily newsletter, SG Commodities is quoted as saying that “that nickel stocks may be too low to plug the gap between 2007-2008 supply and demand; hence, something has to give and outright rationing may be necessary.” The SG Commodities’ review also argues: “We cannot rule out a fresh stratospheric peak, and the subsequent turn could be vicious but prices will still be at exceptionally high levels next year.”
Slow supply growth in the nickel market will keep the market tight until 2010, with average 2007 prices forecast to jump 34% from last year, agrees analyst Jim Lennon of Macquarie Commodities. Already the strongest performer on the London Metal Exchange in 2006, with cash prices there averaging $11.02/lb for the year, nickel again will rise sharply to average $14.75 during 2007, Lennon tells delegates this week at the Informa Australia nickel conference in New Caledonia. Already this week, LME nickel is selling for more than $20/lb now that inventories have dwindled to less than 5,400 metric tons.
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 says. 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.
SC Commodities is in the camp that believes “the stainless steel cycle is losing momentum.” Lennon doesn’t totally agree: A slowdown in stainless steel growth could also offer some short-term relief for the nickel market, he says, but warns that Chinese demand might be "even stronger than we assume—as it always is."
In fact, the International Stainless Steel Forum in Brussels this week announced that stainless steel production rose by 16.7% to a stronger-than-expected to 28.4 million metric tons in 2006. All major regions of the world contributed to this strong growth. There was a small decline in world stainless steel production of 1.1%, which had been projected as a sign of a slowdown in output in 2006. “However, the increase in 2006 growth more than just compensates for the production decline in 2005,” says the ISSF press release.
“Chinese growth accelerated through 2006 but the spectacular upswing was really a Western affair,” agrees the SG Commodities report, pointing to expanded and unexpectedproduction surges of the U.S. (10% growth) and the European Union (13.5%). And that brought the 2006 price of stainless steel cold-rolled sheet Type 304 in the U.S. to an average $2,937/net ton, an increase of 20% over the $2,457 of 2005. The first quarter average price this year is an all-time high of $4,406/ton.
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