It is Nickel boom in China
Published on February 23, 2010 at 03:00
Chinese stainless steel production rose 26.8% to 8.8 Mt in 2009, according to the Stainless Steel Council of China. China’s apparent consumption of stainless steel increased by almost 32%, to 8.22 Mt. The near 0.6 Mt gap between production and consumption supports our view that stainless steel stockpiles in China are vast, and could dampen apparent demand for nickel in the near term.
Moreover, China’s production and net imports of nickel, excluding low-grade nickel ore, rose 66% in 2009, to 0.43 Mt, which implies similar vast off market stocks also exist. Nevertheless, we anticipate Chinese stainless steel production will rise by as much as 20% in 2010 to 10.5 Mt, which should see most of these stocks eroded within H1.
Stalled nickel supply set to return. A crucial support to nickel prices will be largely removed if Vale follows through with its threat to restart full production at its strike-stalled Sudbury operation in Canada.
The company has already partially restarted two of its nickel mines and the first of two furnaces at its main Sudbury smelter using contracted workers. Its next step, which has as yet no timetable, is to ramp-up Sudbury to full production. In addition Xstrata has settled wage talks with workers at its Sudbury operation, removing yet another potential support to prices.
Stainless demand outside China remains weak. There is little to shout about concerning nickel consumption outside of China in the near term.
Finnish stainless steel producer Outokumpu recently summed this up: “No major improvement in the underlying demand for stainless steel is yet visible.” It is surprising therefore to see that nickel prices have fallen only 5% since the start of the year, compared with double digit declines in aluminium, copper, lead and zinc.
Short-term outlook of Nickel
We expect nickel prices to fall in line with corrections in the other base metals over the coming weeks. The fact that they have not, as at 9 February, may be due to expectations that the OECD restocking phase is likely to be vigorous and remove much of the visible stock.
However, judging by the mood of many stainless steel producers, this is unlikely to happen any time soon. Furthermore, LME stocks are still rising, albeit at a slower pace than in December, and this too is negative.
We expect nickel to break below $16,300/t in the very near future and then possibly decline to $15,500/t, but we maintain that nickel prices will average more than $20,000/t in 2010. LME 3-month short-term price: $15,500/t-$19,500/t.
Courtesy: Fortis Bank Nederland - The Metals Monthly February 2010
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