Rebound in stainless steel demand may boost nickel prices
Nickel market surplus estimates revised down
Tom Stundza -- Purchasing, 7/2/2009 9:09:09 AM
Metals market analysts suggest that late second-half restocking of high-grade stainless steel mill products will boost nickel demand and prices, which have slipped to a midyear average of $5.30/lb. That's 57% lower than the $12.38 midyear average in 2008 on the London Metal Exchange and 45% below the full-year 2008 nickel price average of $9.57.
Stainless steel producers, accounting for two thirds of nickel demand, have been using stocks or producing lower quality stainless steel grades ever since nickel prices hit a record-high monthly average of $23.65/lb in May 2007.
A Reuters News report quotes several London-based analysts who say production cutbacks by nickel miners this year also mean less material and potentially higher prices when consumers decide the time has come to buy. "The global nickel market surplus is falling rapidly as a result of the 18-month campaign from producers to cut output in response to the collapse in global demand," writes Joel Crane of Deutsche Bank in a recent note.
It is estimated that 20% of global nickel capacity, or 250,000 metric tons, currently is idled. That has pushed nickel prices to a $6.78 average in June from $4.39 last December and caused mills to use nickel in inventory. The International Nickel Study Group now expects the global nickel market will record a surplus of 80,000 metric tons this year from a 110,000 metric ton surplus previously forecast.
Analysts also believe there is a shortage of stainless steel scrap, a cheap source of nickel, which has dropped sharply this year because of the collapse in global stainless steel production. According to the International Stainless Steel Forum, first quarter global output of 4.8 million metric tons was the lowest quarterly number since 2000.
The shortage of scrap means that when mills look to raise output, they will have little choice but to start buying nickel again. "We see an improvement by the fourth quarter in line with an expected improvement in underlying demand and also the beginnings of restocking by stainless mills," says analyst Gayle Berry at Barclays Capital.
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