Market Briefing - May 18, 2009

The downward trend in nickel prices, which was in place for most of the first quarter, has been reversed. The spot price averaged $11,166/tonne in April, 15% up on March, and the cash quote is currently trading at around $13,000/tonne on the back of investor interest rather than nickel’s own fundamentals. The nickel market has been facing the twin problems of exceptionally weak demand, stemmed from the depressed stainless steel sector at a time when a huge amount of extra capacity is about to be commissioned. However, with prices having fallen to notable cycle lows, producers have either delayed or postponed these capacities.

Although demand conditions remain subdued, the production cuts in place appear to have stemmed the rise in LME stocks. Having risen by just over 35,000 tonnes so far this year to peak at 11,444 tonnes at the end of April, inventories are now (May 14) back to close to 110,000 tonnes. The increase to LME inventories has slowed dramatically in recent months. Over 14,000 tonnes were added to LME stockpiles in February. The rate of accumulation fell to below 10,000 tonnes in March and to just 6,516 tonnes in April. Although most short term indicators of the market are negative, particularly on the demand side, we believe that we are at a turning point for the fundamentals of the nickel market.

Nickel demand starts the year on a negative note…
The latest data by the World Bureau of Metal Statistics (WBMS) suggests that global nickel demand registered a 22.6% y-o-y fall to 174,100 tonnes over the January-February period. Depressed demand conditions last year have certainly carried into 2009. All regions experienced falls in their consumption, with the steepest decline estimated in Europe at 34%. Highlighting the dire demand conditions, US physical premiums, for example, are presently in a range of 25-28c/lb for melting grade nickel, down from 30-40c/lb in March.

> This article gives the introduction to our latest detailed analysis on the market. To access a full version of a recent detailed monthly report on the base metals markets plus a recent briefing update, click on the links below.

> Base Metals Market Briefing - December 9, 2008.

> Base Metals Market Briefing Update - December 16, 2008.

Disclaimer: Whilst every effort has been made to ensure the accuracy of the information used in this document, GFMS Metals Consulting cannot guarantee such accuracy and GFMS Metals Consulting does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this information.