LME stocks continued to fall in May to mid-June, reaching 131,712t on 15 June, down 10% from the start of May and 17% down this year. But this trend may soon stop, as rising supply in H2 2010 coupled with the summer slowdown in real demand, as well as a potential pause in restocking all threaten to put the brakes on further outflows of nickel.
Nickel prices suffered the worst six weeks to mid-June of all base metals. The three-month LME contract was ~$20,000/t on 15 June, down 22% from the start of May. However prices are still up 9% from the start of the year.
Supportive factors have been restocking and rising demand leading to falling exchange stocks and weaker than expected supply due to delays at Vale s new Goro project on New Caledonia and the ongoing strike at Vale s Sudbury operations in Canada. This has seen premiums in the US and Europe rise significantly.
Much like the rest of the base metals, nickel prices have been pressured by eurozone debt concerns and the slowdown in Chinese lending. The summer slowdown may further weigh on prices and we expect to see a further downside during Q3. Restocking in OECD economies appears to be slowing, while China is currently in destocking mode as stainless steel production has outpaced demand.
In 2009, China produced 9.2 Mt of stainless steel but at current production rates it is on course to produce more than 11 Mt up 17% year-on-year. With China s net imports of nickel down 22% year-on-year in the first four months of 2010, to 42,257t, we expect that some Destocking has taken place, coupled with the near 60% increase in domestic nickel production, to 114,000t.
This has been aided by a sharp rise in China s nickel pig iron (NPI) production, which in the first four months of 2010 we estimated at almost 61,000t, up 170% from the same period in 2009. This implies that Chinese NPI output could reach a record 200,000t in 2010 and at current prices most of this NPI production is profitable. If a slowdown in nickel consumption does occur during Q3 then this may weigh heavily on prices.
Short Term Outlook on Nickel
The nickel price went up too high and too fast during early Q2 to be sustainable. Chinese NPI supply is now at a record high while the only glimmer of short-term relief comes from the continued disruptions at Vale s Sudbury operations and the delay at Goro.
Nickel prices suffered the worst six weeks to mid-June of all base metals. The three-month LME contract was ~$20,000/t on 15 June, down 22% from the start of May. However prices are still up 9% from the start of the year.
Supportive factors have been restocking and rising demand leading to falling exchange stocks and weaker than expected supply due to delays at Vale s new Goro project on New Caledonia and the ongoing strike at Vale s Sudbury operations in Canada. This has seen premiums in the US and Europe rise significantly.
Much like the rest of the base metals, nickel prices have been pressured by eurozone debt concerns and the slowdown in Chinese lending. The summer slowdown may further weigh on prices and we expect to see a further downside during Q3. Restocking in OECD economies appears to be slowing, while China is currently in destocking mode as stainless steel production has outpaced demand.
In 2009, China produced 9.2 Mt of stainless steel but at current production rates it is on course to produce more than 11 Mt up 17% year-on-year. With China s net imports of nickel down 22% year-on-year in the first four months of 2010, to 42,257t, we expect that some Destocking has taken place, coupled with the near 60% increase in domestic nickel production, to 114,000t.
This has been aided by a sharp rise in China s nickel pig iron (NPI) production, which in the first four months of 2010 we estimated at almost 61,000t, up 170% from the same period in 2009. This implies that Chinese NPI output could reach a record 200,000t in 2010 and at current prices most of this NPI production is profitable. If a slowdown in nickel consumption does occur during Q3 then this may weigh heavily on prices.
Short Term Outlook on Nickel
The nickel price went up too high and too fast during early Q2 to be sustainable. Chinese NPI supply is now at a record high while the only glimmer of short-term relief comes from the continued disruptions at Vale s Sudbury operations and the delay at Goro.
