Hold the Nickel Price Elation

Source:

"For even the moderately bullish scenario to come to bear, it will be critical to see steel demand show signs of life this year—at least not drop off more than expected—in China and beyond."

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There's been some salivation over the spot nickel price lately.

It's beaten to smithereens, down from around $9/lb a year ago to well under $6/lb in recent weeks.

Indeed, nickel has "surged" in recent days bringing it just over $6/lb from about $5.60/lb a week ago.

That move has piqued market interest in a metal heavily hammered in the past year or so.

Yet it's worth checking excitement about any advertised boom in prices, especially with lofty targets (say back to $10/lb or more as nickel traded in 2010-2011).

For one, nickel supply hardly seems to be hurting at the moment, despite export restrictions in Indonesia. 

With supply from the Philippines bridging the gap, for now, few analysts predict giant supply holes in the market near term.

Credit Suisse assesses nickel as showing a "near-balanced market in 2015" that may slide into deficit next year assuming higher cost nickel pig iron (NPI) production slows down.

Commerzbank shares the view. While it noted the ongoing supply disruption at BHP's Cerro Matoso mine in Colombia was affecting supply and seemingly boosting prices, it sees little reason to be concerned over supply right now. 

"This (the closure of Cerro Matoso) is evidently driving up the price despite the fact that the global nickel market is amply supplied in our opinion," Commerzbank noted recently.

What's more, if Chinese stockpiles are in decline, LME stockpiles have been on the rise. Meantime, steel demand in China has been sluggish.

So in terms of more immediate supply issues, it’s not exactly a super bullish moment for nickel.

If the price is to get better substantially, a lot hinges on NPI and whether producers curb production given current prices. That is, the market needs strong confirmation that these prices are loss making and pushing out production.

In this, Credit Suisse sees nickel going to about $7.25/lb later this year, assuming a price that keeps "high-grade NPI in production using medium-grade Filipino ore."

But it cautions not to expect much beyond that price level.

Indeed, for even the moderately bullish scenario to come to bear, it will be critical to see steel demand show signs of life this year—at least not drop off more than expected—in China and beyond. And of course, LME stockpiles, stubbornly high, should should begin to retreat.

Then it might at least be worth singing about nickel price bottoms.

Yet racing to herald a major turnaround in nickel prices, that still seems premature.

Kip Kee
Mineweb

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