Citigroup Raises 2007 Nickel Forecast on Supplies (Update1)
By Millie Munshi
March 19 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank, raised its 2007 forecast for nickel, saying supply constraints will keep the commodity in a ``super cycle'' of elevated prices.
The bank forecast the metal will average $17.50 a pound in the first half, San Francisco-based analysts led by John Hill wrote in a report yesterday. That's 9.4 percent higher than a Citigroup estimate in October, and above the average $17.22 a pound price so far this year. The bank also raised its second-half forecast 35 percent to $13.50 a pound, saying supply will be more limited than it anticipated last year.
In February 2005, Citigroup's Alan Heap, the bank's director of global commodity analysis, said metals may be entering a ``super cycle.'' Since then, prices for metals including nickel have more than doubled on the London Metal Exchange.
``We remain ardent adherents of the commodity super-cycle theory,'' according to the bank report. We ``do not believe metals are artificially inflated.''
Nickel, used in stainless steel, gained 13 percent in London last week, the biggest weekly gain in more than two years. The metal traded at a record $48,500 a metric ton ($22.02 a pound) on March 16 on speculation shrinking stockpiles indicate supply is falling short of demand. Before today, prices had gained 43 percent this year. The metal averaged $23,223.29 a ton ($10.54 a pound) last year.
``Record prices reflect acutely low stocks'' and strong demand from the stainless-steel sector, the report said. ``Nickel is likely to remain in deficit in 2007.''
Inventories Low
Stockpiles of the metal have fallen 89 percent in the past year as producers failed to keep up with demand from the stainless-steel industry. Inventories are roughly equal to less than one day of global consumption.
``Nickel miners are running flat out,'' the analysts wrote. ``Even a modest supply-side outage could have profound implications.''
The price of the metal has soared nearly 10-fold in the past five years as demand surged in China, the world's largest consumer of nickel.
Citigroup raised its second-half price forecast for aluminum by 10 percent to $1.10 a pound, while cutting its forecast for the first half by 1.6 percent to $1.23 a pound. The bank previously forecast an average of $1 a pound for the second half and $1.25 a pound for the first.
Aluminum Supplies
``Stocks are now dipping again after briefly rising,'' the analysts wrote in the report. ``Longer-term, aluminum is the likely winner in the substitution battles, given its more modest price appreciation and competitiveness with copper'' and zinc.
Aluminum prices have gained 13 percent in the past year, while copper has increased 30 percent and zinc has gained 31 percent.
Aluminum demand will outpace supplies by 48,000 tons this year before reversing to a surplus of 118,000 tons in 2008, Citigroup said.
The bank increased its forecast for copper prices in the first half by 1.1 percent to $2.73 a pound and cut its forecast for the second half by 3.2 percent to $3.00 a pound.
``Modest, yet conspicuous, increases in LME inventories have triggered fears of excess supply, particularly given the slowdown in U.S. autos and housing,'' the analysts said.
Prices for copper, used in pipes and wires, have fallen 25 percent since reaching a high on May 11 as a slumping U.S. housing market decreased demand and helped raise inventories monitored in London by 69 percent.
The bank also cut its first-half forecast for zinc prices by 1.7 percent to $1.70 a pound while leaving its second-half forecast unchanged at $2.00 a pound.
Nickel for delivery in three months fell $1,100, or 2.3 percent, to $46,600 a ton on the LME today. Aluminum dropped $2 to $2,812 a ton, copper gained $20 to $6,625 a ton and zinc fell $45 to $3,205 a ton on the LME.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
Last Updated: March 19, 2007 15:45 EDT |
