Commodities | May 03 2006
By Chris Shaw (Tokyo)
The strength in commodity prices is good news for investors holding resources shares, but as steel industry consultants MEPS notes it is causing headaches for industry players needing stocks of the commodities for their operations.
MEPS suggests participants in the stainless steel market are currently suffering from higher nickel prices, particularly as the price has moved up at the same time as the industry is moving to rebuild its stockpiles.
The industry expert notes both distributors and end-users have been buying more than they need since early this year, reversing the trend of the second half of last year when stockpiles were allowed to fall.
But the nickel price movements are complicating the situation, in part MEPS notes, because no-one is really sure why the nickel price is going up. Its contacts in the industry have divided opinions as to whether the price reflects stronger buying at a time when there is a physical shortage of the metal or is a response to speculative and investment money continuing to flow into the market.
This leads MEPS to the view participants in the stainless steel market may become more cautious in coming months, as while the nickel price is strong now it could easily slide, resulting in another round of de-stocking. Such an outcome could also result in stainless steel producers limiting production in coming months in an attempt to support prices.