Last Updated : 07 April 2010 at 14:35 IST
Why Nickel stocks are falling at LME
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Nickel was in overall supply deficit in the seven months to January 2010, with deficits recorded in July-October 2009 and surpluses in November 2009-January 2010, according to the International Nickel Study Group (INSG). January’s data however shows the market surplus declining sharply to 2,100t, from 11,700t in December 2009, and perhaps signals a trend back into deficit in February. The fact that LME stocks have only now begun to fall may suggest that Destocking has only recently given way to restocking.
Nickel supply remains constrained but Vale’s aim to restart its Sudbury operations in Canada with contractors, after failing to agree a wage deal with unionized workers, could tip the market balance into a wide surplus. This will be compounded further should more idled nickel supply restart and Chinese nickel pig iron production start growing again. At current prices, this is feasible and would plunge the market back into surplus later in 2010 and 2011.
In the longer term, we are watching Vale’s high-pressure acid leach (HPAL) Goro nickel laterite project in New Caledonia, and its implications for long term nickel supply. Following the mothballing of BHP -13824’s HPAL Ravens Thorpe project in Australia after just two months of operation, much now depends on Goro’s success, given that 14 other similar projects are in the pipeline.
Failure to produce nickel cost effectively could influence the other projects and significantly dent the nickel supply pipeline, given that sulphide deposits are increasingly hard to find or at depth. Because of the vast sums of money Vale has spent on Goro, we fully expect the project to enter commercial production later this year.
Short-term outlook on Nickel
High prices could tempt producers to rapidly bring on new supply and restart idled supply, as well as encourage Chinese NPI output to rise further. Current prices are not sustainable and we are looking for some correction in the near-term. Short-term LME three-month price: $19,000/t-$23,350/t.
VM Group research for Fortis Bank Nederland - Metals Monthly March 2010
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