Fundamentals Positive For Nickel
26/02/2010 1:15:03 PM
By Chris Shaw
Having suggested late in 2009 nickel prices were undervalued relative to both fundamentals and other base metals, the fundamental analysts at Barclays Capital saw their view confirmed as the metal surged higher through the early part of 2010 on the back of improving physical market conditions.
The fact nickel had lagged the rest of the base metals for most of the second half of last year was a surprise to Barclays as the market was in a clear deficit during the period, thanks in part to supply restrictions stemming from Vale's Canadian mines being closed.
The improving fundamentals were masked somewhat by high levels of delivery into LME warehouses, but the first few months of 2010 has seen this situation change as LME inventory trends have shifted to net draws in February in particular.
At the same time Barclays notes Asian demand appears to be strengthening as stainless steel mills in the region are lifting production, while US and European demand levels are also improving from quite low levels.
The demand side improvement should continue through 2010 predicts Barclays as the analysts note the Bureau of International Recycling has estimated world stainless production will increase by 17% to 28 million tonnes this year, bringing it back to 2007 levels.
At the same time, Barclays notes Vale's Canadian facilities remain shut and the Goro project has been pushed back, while no additional nickel pig iron capacity is expected to come on line in the Chinese market this year.
All of this leads Barclays to suggest current nickel market fundamentals are supportive of further price gains during the first half of this year, so any price weakness stemming from uncertainty in the broader market should be seen as a buying opportunity in its view.
This differs from the view of the technical analysts at Barclays, who earlier this week suggested the short-term outlook for nickel was for a correction given some overbought indicators and an inability to make new highs in recent sessions (see FNArena: Nickel Flashing Overbought Signals, 25/02/10).
