Nickel prices set for recovery as demand improves
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Nickel prices are starting to stage a recovery after a selloff over the last several months, supported by a perception that the downside might have been overextended and demand from the stainless steel industry is set to pick up, analysts said on Tuesday.
This recovery is despite rising stocks in LME warehouses and a relative abundance of scrap with historically low nickel content.
RUNNING HIGHER
Nickel, primarily used as an alloying agent in stainless steel, has halved in value since its record peak of $51,800 a tonne in May. But in recent weeks, the metal has been making a run higher amid low volumes and volatile trading. As of 0749 GMT, LME nickel was trading at $29,425 a tonne.
Analysts predict the former fund favourite could rally back to $35,000/ tonne in the near term, given the metal’s vulnerability to short covering and the competitiveness of nickel at these lower prices relative to nickel pig iron, increasingly used as a substitute for the metal.
Support is seen around $20,000/tonne, the point where pig iron is no longer cost-effective, Mr. Daniel Smith at Standard Chartered said.
The economics of using nickel pig iron as a substitute have been called into question recently given the drop in nickel prices. This could trigger a return of consumers to nickel, particularly given its superior quality and ability to be used in a wider range of products than its pig iron rival.
END TO SLOWDOWN?
Additionally, there is a view in the market that the slowdown in stainless steel consumption seen in the past few months will come to an end with demand for nickel improving as the fourth quarter progresses.
“In the near term, we expect nickel prices to remain supported at or above current levels as stainless steel producers return to the market after a seasonal period of de-stocking,” Mr. Hussein Allidina of Morgan Stanley said.
Stainless steel is the biggest consumer market for nickel but in recent months demand has fallen causing key manufacturers in Asia and Europe to announce large scale cutbacks.
That hasn’t helped support nickel prices.
But lower nickel prices have reduced stainless steel surcharges, increasing affo5rdability to both service centers and producers, Mr. Allidina added.
UNLIKELY TO PEAK
Despite forecasts for nickel prices to the market’s former highs isn’t likely.
Continued LME warehouse stock builds have sent inventories almost six times higher since nickel prices peaked in May, and analysts said this will limit the market’s upside.
“Fundamentally the upside is limited,” said Mr. Michael Jansen of JPMorgan. “It will be difficult for the market to hold the rally if stocks keep rising.”
He added that while there is a sense in the market that stainless steel demand will increase, there hasn’t yet been any evidence for a rise in consumption.
UNCERTAINTIES
“To a large extent, consumers have backed off the steel market, waiting for prices to reflect where nickel prices have gone,” Mr. Jansen said, adding that prices are getting closer to that point.
Adding to the stock rise, broader financial market uncertainty could also weigh on nickel prices. Analysts said that given the sub-prime problems and economic uncertainty, if benchmark metals such as copper and aluminium fall then that will also cause renewed falls in nickel prices.
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Source : Business Line |
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