Nickel rally likely to continue on low supply, strong demand

Such strong was the rally that nickel has become the top performing commodity this year mainly due to supply shortage and robust demand from stainless steel makers.

The rally was supported by an increase in cancel warrants at LME warehouses and higher raw material cost for steel products like iron ore.

Stainless steel accounts for about two-thirds of global nickel demand.

The sentiments were also boosted by China, the world’s largest base metals consumer, strong GDP and imports data, positive US housing data and increase in auto sales during the year.

Since the last two years, nickel remained weak –– from a high of above Rs 2,200 per kg in MCX, it fell to almost Rs 550-700 levels in 2009.

LME nickel stocks, the bulk of which are in the form of full-plate cathode, can be an indicator of real demand.

LME nickel inventories hit a record high of above 166,000 tonne in early

February. But since then, they have dropped around 6% to their lowest since late 2009.

The rally in major base metals is likely to continue till the first half of 2010.

The greenback fell to its lowest level this year against a basket of currencies, making dollar-priced commodities cheaper for holders of other currencies.

Despite anticipation that Chinese buying could hit plateau in near term and concerns that LME metal stockpiles (copper and aluminium) are rising sharply, base metals would be supported by gains in global equity markets, a weaker dollar and speculative interests.

World production of refined nickel totalled 1.386 million tonne in 2008, with consumption at 1.278 million tonne.

At end of 2009 we saw that demand started to improve but supplies didn't really rise dramatically in response to higher prices.

Also, there has been a shortage of nickel scrap in the last 18 months and if this continues, we may see handsome rally in prices in the coming days.

Global nickel production would rise by 4% to 1.371 million tonnes this year but will fall into a deficit for the first time in four years, industry consultants CRU Group said on Thursday.

However, another metal analyst has predicted that nickel market will be in a deficit of at least 10,000 tonnes this year but surpluses will return in the following three years...