Nickel's fortunes rise

Posted By DARREN MACDONALD, THE SUDBURY STAR

Posted 47 mins ago

Nickel has been a hot commodity, so to speak, on world markets of late, with prices briefly breaking the US$7 mark this month, before settling between $6.70 and $6.80 a pound.

Still a far cry from the heady $25-mark of recent years, but a big improvement from the sub- $5 it hovered around for much of 2009.

Analysts attribute the recent resurgence to a number of factors, but China is again the biggest single player.

Bart Melek, of BMO Capital Markets, says China has been buying up commodities such as nickel because it views current prices as a relative bargain.

"Essentially, we've been seeing more imports of metals into China, and nickel, as well," Melek said. "That suggests that there's some degree of restocking happening. And that metal is particularly sensitive to that."

The weak U. S. dollar is also driving prices, as traders look for somewhere safer to park their money.

"We've seen an awful lot of more speculative money going into commodities, particularly with the falling dollar," he said.

"There is also some demand in China on the manufacturing side. They put $585 billion into their stimulus plan and that's certainly having an impact. So it's not all bad."

Phil Flynn, a trader with Alaron Trading in Chicago, agrees, saying nickel is benefiting from a general flight from the greenback.

"Global demand for commodities is high, especially with what's going on with the dollar here in the United States," Flynn.

"Countries like China would rather own commodities like copper and nickel right now in lieu of the U. S. dollar."

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"So we're going to be using nickel in the cars we're going to be building at 'Obama Motors.' Just kidding, at GM."

The downside, says Melek, is that the higher prices aren't really buffeted by sound economics.

"You will probably see significantly higher prices as 2010 starts unfolding, when things should firm up," he says. "Things are looking fairly decent for then. But it will be a while before that happens."

"Other than that, do I see an awful lot of upside in the near term? Not really. The supply and demand fundamentals aren't really there yet."

While people in Greater Sudbury are closely watching contract negotiations between Vale Inco and United Steelworkers, Melek says markets haven't really taken notice. In fact, he said a strike here and at Voisey's Bay wouldn't spark a price spike.

"Certainly over time it might, but as it stands, there's an awful lot of concentrate out there," he said.

As far as the prospects of a return to the sky-high prices of 2007-2008, Melek isn't holding his breath.

"Well, hey, listen, never say never. But it's not in the forecast at this point."

But Flynn the trader is much more optimistic.

"I think we will. I think we're definitely moving in that direction again," he said.

"I think all the highs we've reached will be reached again."

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Nickel rising

On May 22,Natixis revises its forecast for nickel to average US$5.10/lb in 2009;

On May 29,S & P revises its forecast for nickel to average US$5/lb for the 2009-2011 period;

On June 1,Standard Bank its revises forecast for nickel to average US$6.31/lb for 2009.