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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (36035)	4/24/2009 12:18:39 PM
From: LoneClone	Read Replies (1) \| Respond to of 193536

Nickel – Signs of life after the collapse – Macquarie wintang.com Nickel prices have rallied strongly since the end of March, rising by over 30% from around USD 9,400 per tonne to USD 12,300 per tonne. The price has exhibited a certain amount of stability since late 2008, reflecting the fact that plunging demand has been offset by a constant stream of production cut announcements. Macquarie Research Commodities in a recent note said that “ The recent rally has taken many by surprise in that the news from the main end use markets, especially in stainless steel, which accounts for around 65% of total demand, on the whole remains bleak and there is still a feeling that massive excess capacity and unsold stock hangs over the market.” Macquarie said that some of the factors explaining the recent rally are 1. Short covering Open interest on the LME has fallen over the past week as prices have rallied, indicating that speculative shorts have covered. This reflects the general rally in other base metals and also a more bullish general macro outlook based on the expectation that lead indicator data may soon start to bottom out in the USA and China. 2. Stainless orders on the rise After collapsing for the past 6 months to 9 months, reports are filtering through in Europe and in parts of Asia, especially Taiwan, of a rise in orders for stainless steel. There are also reports of a small rise in stainless steel base prices in some markets for the first time in a while. The order rise could reflect speculative orders on the back of nickel price rises, given that a part of the stainless steel price is an alloy surcharge based on the previous month’s nickel prices. 3. A growing shortage of secondary nickel As we have reported in the copper market, low prices and weaker economic activity have led to less secondary supplies being available. In the stainless steel market, almost half the nickel comes from recycled stainless steel scrap and reports from the market indicate that scrap availability will fall by more than 20% this year. In China, we have heard of a mad scramble to buy ferronickel from the import market as a result of tight scrap availability (and also a collapse in nickel pig iron production). This has run down a lot of the non-reported nickel stocks in recent months. 4. Fear of further supply disruptions Speculation is growing about potential industrial action at Vale Inco’s Canadian nickel operations, where new labour contracts are due for renewal at the end of May. Including half the Voisey’s Bay product (which is processed at Sudbury), this could affect around 100,000tpa of nickel (around 8% of 2009 world output). Macquarie said “Of course most participants in the nickel market are incredulous at the rally given the dire state if the current market. According to latest INSG (International Nickel Study Group) data released yesterday, world nickel use fell 27.4% YoY in the first two months of this year. Production was reported as having fallen by only 10.7% YoY, implying a surplus of supply over demand of 41,800 tonnes. (LME stocks rose by just over 20,000t over the same period.)” The nickel market in Jan-Feb 2009 --------------------------------------------------------- J-F'09 J-F'08 Change --------------------------------------------------------- Usage Western Europe 43.9 70.3 -37.6% Eastern Europe 1.0 1.5 -33.3% Former Soviet Union 4.0 5.5 -27.3% China 61.5 63.0 -2.4% Japan 13.2 28.0 -52.8% Other Asia 23.9 30.6 -21.9% USA 14.0 22.6 -38.1% Rest of world 8.6 12.8 -32.8% Total world use 170.1 234.3 -27.4% Total world production 211.9 237.2 -10.7% Balance 41.8 2.9 --------------------------------------------------------- In ‘000 tonnes Source: INSG, April 2009 Macquarie added that “The problem for nickel is that there is an enormous stock sitting on the LME (just over a month demand compared with just over a week of demand in copper for example) and also that the industry is operating at such a low rate of utilisation (around 75% according to our estimates compared with over 90% in copper). Plenty of potential supply hangs over this market.” Nickel production is running around 25% below plan in 2009 Macquarie added that “The positive element in the nickel market is that historically, when demand turns, it turns very sharply, due to speculative over-stocking and also typically that tighter scrap supplies in the upturn lead to a massive rise in primary nickel demand. Also, it is likely that there would be a significant lag before supply taken off-line could be brought back into production (2-6 months). In addition, history tells us that LME stocks are not always readily “available” in an upturn!” Macquarie concluded that “On balance, it may be too early to be buying nickel and the risks of a short-term pull back are still quite high. However, the risks are gradually moving to the upside as the year progresses and being short ahead of a potential Vale Inco strike may be risky.”