http://www.purchasing.com/article/447259-Nickel_Transitional_year_ahead_with_improved_demand_higher_prices.php

Nickel: Transitional year ahead with improved demand, higher prices

By Tom Stundza -- Purchasing, February 11, 2010

"Global demand for nickel has fallen for three consecutive years but is expected to rebound in 2010 as world stainless steel production boosts use of the alloying and plating metal to 1.35 million metric tons.

"The nickel market will remain very volatile," says Sven Tollin, chief statistician of the International Nickel Study Group, but he still sees an 11% rebound in purchasing. Analysts at Roskill Information Services, however, forecast nickel demand rising by just 7% this year to 1.3 million metric tons.

Whatever forecast is correct, both see nickel consumption increasing from an estimated 1.21 million metric tons in 2009 because of an estimated 8% improvement in world stainless steel output to 27 million metric tons. Although nickel is used to make or coat various specialty alloys, its mainstream use is in the smelting of stainless steel. In fact, stainless steel production accounts for around two-thirds of total nickel consumption.

Even with the anticipated expanded use of nickel this year, analysts at Roskill and the INSG project a consensus market surplus of around 81,000 metric tons this year, as output of primary nickel increases to 1.42 million metric tons.

The Roskill analysis says "the fallout from the financial crisis that afflicted the world economy has seen nickel prices fluctuate wildly" on a monthly basis—and that will continue in 2010 trading on the London Metal Exchange (LME). This year's average nickel price will be around $8.35/lb, according to the consensus forecast of 30 analysts, up from $6.64 in 2009 but below the $9.47 in 2008.

The fall in 2009 nickel prices was due largely to a collapse in demand as the key end users, the stainless steel mills, aggressively cut inventories. Producers responded quickly to the fall in demand, with around a quarter of all mining and smelting production suspended during the first half of 2009. While demand and production of nickel declined, stocks at the LME built up steadily. At the end of December 2009, official stocks at LME warehouses were in excess of 150,000 metric tons.

Economist and Purchasing Commodities Council member John Mothersole at IHS Global Insights says in a recent analysis that the near record-high LME nickel inventories "are putting downward pressure on prices in the immediate near term." He expects prices to average under $7.60/lb in the first half of the year—"until Western demand begins to show signs of a sustainable recovery."

The nickel market has a history of strong annual growth in demand. For the period of 2000–2006, when demand peaked, consumption at the world level increased at an annual average rate of 3.8%.

Although consumption increased across the world, China exhibited the largest growth. From 2000–2009, its domestic demand is estimated to have risen by an annual average rate of almost 25%. This phenomenal growth has seen China become the world's largest consumer of nickel. In 1995 China accounted for a modest 4% of world consumption, increasing to almost 30% in 2008.

In the first half of 2009, around a quarter of all production from 2008 was suspended, or as the industry terms it, placed on care and maintenance. Major producers such as Norilsk Nickel, BHP Billiton, Vale Inco and Xstrata all curtailed production to stabilize prices at higher levels, while a now six-month-old strike action at Vale Inco's operations in Canada also limited output.

BHP Billiton has sold nickel assets, which Roskill's analysis says is an attempt to distance itself from the nickel market. The Anglo-Australian company sold its Ravensthorpe mine and Yabulu refinery in 2009.

Meanwhile, Cuba's unrefined nickel production appears to have dropped to 62,500 metric tons last year, the lowest in a decade and 11% below expected, according to Reuters.

Cuba produced 70,400 metric tons of unrefined nickel (containing some cobalt) in 2008, after averaging between 74,500 metric tons during much of the decade. Cuban nickel is mined at three plants by Canadian mining company Sherritt International and the state-run Cubaniquel."