The Hindu Business Line : Nickel tops $50,000/tonne

Behind bull run
Global nickel consumption posted a strong 8.1 per cent year-on-year rise in January.
Experts say if price rally continues nickel demand will suffer from substitution.

Mumbai March 17 Nickel prices have rallied and are setting a series of all-time highs. The impressive price performance can be gauged from the market movement. London Metal Exchange cash prices registered $50,875 a tonne on Friday, up $800 from the previous day.

LME three-month is $47,700/tonne, disclosing a cash to three-month backwardation of around the wide $3,000/tonne level.

Strong demand for stainless steel has continued unabated. In addition is the delay in supplies and fear of disruptions. At the LME the inventory levels are critically low at 3,564 tonnes.

High consumption

The latest data released by International Nickel Study Group showed that the nickel market was in a 39,700 tonnes cumulative deficit in 2006 as a whole. In January this year, the market fell into a modest 1,800 tonnes surplus.

Global nickel mine production edged modestly lower in January on a month-on-month basis, but is up 5.6 per cent year-on-year. Global refined nickel was up 6.4 per cent year-on-year and posted the highest ever monthly output figure at 12,190 tonnes.

Consumption

Global nickel consumption, meanwhile, posted a strong 8.1 per cent year-on-year rise in January, which is the third highest consumption figure ever.

While much of the strength is attributed to positive demand conditions, in the light of sustained rally in prices, it looks likely that nickel demand will suffer from substitution before too long, according to experts.

In the short term, there may not be any easing in the supply situation. So, the market is only likely to ease should demand subside.

Substitution is already taking place in certain stainless steel grades in China.

If cash prices continue to be at $ 50,000/tonne, further substitution or reduced demand can be expected from the stainless steel sector.

Interestingly, however, critically low nickel inventories suggest that price volatility will stay high with big price risk in either direction.