Commodities | Jun 11 2009
By Chris Shaw
It has been a good run for the nickel price over the past two months,
Barclays Capital notes the 3-month contract has gained almost 50% over
this period and so far outperformed the 27% rise in copper and 13% gain
in aluminium over the same time frame.
According to the group the magnitude of the gain has been somewhat of a
surprise given the current oversupply of the metal on global markets,
though this has been overshadowed in sentiment terms at least by higher
Chinese refined nickel imports and stronger production levels in that
market.
In addition, tthe group notes London Metal Exchange
(LME) inventories have fallen modestly of late, Standard
Chartered estimates stocks fell by 4,900 tonnes in May to around
110,000 tonnes and have fallen further in the early part of this month.
Despite these declines, stocks remain relatively high at around
28 days of consumption.
This could reduce further according to Barclays given production cuts
so far this year amount to about 21% of total output in 2008, meaning
any pick up in buying could see stockpiles come down more. This is not
guaranteed though in the group’s view, as while Chinese demand appears
to be improving as orders hit multi-month highs global demand remains
weak and is to date showing few signs of any sustained turnaround.
Standard Chartered also points out there remains a lot of
production that could quickly come back on line and so meet any demand
increase, the most likely being Chinese nickel pig iron producers. The
other point Barclays makes is some of the recent buying appears to have
been speculative in nature and so is likely to fade away at current
higher price levels.
In other words the group’s view is fundamentals don’t support the
recent strength in nickel prices and won’t until demand improves, which
suggests some sort of correction in coming months. Downside appears to
be limited to something approaching US$10,000 per tonne in the group’s
view, though this still implies a fairly significant correction given
prices are currently around the US$14,000 per tonne mark.
Standard Chartered agrees prices could begin to drift a bit in the
coming quarter, though on its numbers the nickel price should still
average something like US$14,000 per tonne in the September quarter and
US$13,000 per tonne in the December quarter, which is equal to its
forecast for the current quarter
National Australia Bank’s December quarter estimate is almost the same
but the bank is a little more conservative between now and then,
forecasting average prices of US$12,725 per tonne for the three months
to the end of June and US$13,012 per tonne in the September quarter.