FYI | Jun 19 2007
By Greg Peel
The nickel price peaked in mid May at a Comex price over US$24.00/lb and has come in for some rough treatment since. After a couple of days of rallies, last night the metal started to tip over in London trade once more before gaining momentum to finish down 7.4% in New York at US$18.89/lb.
Analysts have been warning of a pullback in nickel prices for some time, if for no other reason than technically it had run way too hard. However, forecasts of increasing supply have been the main reason analysts have posted a warning on nickel stocks as recently as this week. (See “What’s Wrong With Nickel”; Commodities, yesterday)
Last week the LME set a pullback in train by tightening leasing rules on the exchange, forcing hoarders of the metal contracts to lend physical to short positions. The price had recovered somewhat this week, but last night Barclays Capital put the cat amongst the pigeons once more by suggesting another pullback was due “in light of easing tightness in the nickel market highlighted by robust Chinese low-nickel pig-iron output, rising LME nickel stocks and moderating stainless steel activity in the U.S. and Europe”.
At 9,288 tonnes, stocks with the LME are quietly approaching the psychologically important 10,000 tonne mark. This meant that when the price started to turn last night the buyers stood aside. On a technical basis, nickel could fall a long way without breaking its up-trend.
The rest of the base metal complex was weak last night as well. Zinc lost 2.3%, aluminium 1.9% and copper 1.1% with only lead holding ground.
All things being equal, today may not be the day that local market pin-up Rio Tinto (RIO) closes over the $100 mark. However, Rio doesn’t have any nickel. It will be BHP Billiton (BHP) and the nickel pure-plays more likely to feel some pain.
The US stock market was quiet last night as it took a breather from three days of strong gains. The release of weak housing confidence data renewed concerns the housing downturn may not be over so traders were happy to let the Dow slip back 26 points with US bond yields easing back slightly again to 5.14%.
Gold once again edged up, closing at US$655.60/oz in New York. More notable however was the oil price. While Wall Street has been basking in the glow of benign core inflation results, the oil price (which forms part of headline inflation) just keeps pushing northward largely ignored. Crude for July delivery was up again last night on Nymex, closing another US$1.09 higher at US$69.09/bbl. Maybe when it crosses US$70/bbl people will begin to take notice.
The SPI Overnight was down 23 points, suggesting some weakness early in the local bourse this morning.
