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Nickel prices are in danger of stalling as weak demand from the stainless steel sector could re-assert itself after the latest round of stimulus measures loses momentum.

03 Oct 2012

LONDON (Commodity Online): Nickel prices to average $18,750 per metric tons next year, said Deutsche Bank in a quarterly commodity research note.

According to the largest German bank, nickel prices are in danger of stalling as weak demand from the stainless steel sector could re-assert itself after the latest round of stimulus measures loses momentum.

"We believe that the liquidity induced price rally is in danger of stalling as the market looks for signs of a more sustained improvement in the macro environment," the investment bank added.

The US Federal Reserve last month said it would buy $40 billion of mortgage debt in the latest round of quantitative easing. The latest round of quantitative easing meant that nickel prices had advanced strongly as funds started short-covering and risk appetite returned to the market.

LME three-months nickel traded at a five-month high of $18,920/mt on Tuesday, select up from a year low of of $15,236/mt in August.

The nickel had been the worst performing metal this year as stainless steel producers had been destocking and only buying on a hand-to-mouth basis because of global economic uncertainty.

In the US, destocking by stainless mills lead to a drop of 10% in melting rates in the first half of the year. Inventory in days of consumption at US mills also fell to multi-year lows.

The German bank also noted that capacity utilization rates at European stainless mills were currently around 65%.

However, the low levels of inventory at mills could also put a floor under base prices.

The Chinese nickel pig iron capacity was below 50% and that producers had been hit by higher costs because of the introduction of a new tax on ore exports by the Indonesian government.

"Given recent price advances in nickel, profit margins for Chinese NPI producers have improved. However, we do not expect a large-scale restart of NPI production in the near term as production costs remain elevated," Deutsche Bank concluded.


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