Nickel may drop 8pc in second quarter
Monday, 22 March 2010
LONDON, March 21 (Bloomberg): Nickel may drop 8 per cent in the second quarter, eroding its lead as this year's best-performing metal, on concern that demand won't accelerate fast enough to drain stockpiles, a survey of analysts showed.
Prices will average $20,944 a metric ton in the next quarter, down from yesterday's $22,760 close, according to the median in a Bloomberg survey of 13 analysts. Nickel rose 23 per cent on the London Metal Exchange since January, extending last year's 58 per cent jump.
The metal is having its best start to a year since 2007 as stainless-steel output, the biggest source of demand, exceeds analysts' expectations. That advance may falter as supply from new mines adds to stockpiles already at more than three times the five-year average, the analysts said.
"Inventories are incredibly high and when the supply side starts to come back on, that means that the upside is very limited," said Dan Smith, an analyst at Standard Chartered Plc in London. He expects a second-quarter average of $16,000.
Vale SA, the world's second-biggest producer, said on March 16 that its Goro mine in New Caledonia would produce the first metal this month or next. New mine supply will likely mean production exceeds demand from next year, according to researcher Brook Hunt, a Wood Mackenzie company.
About two-thirds of nickel is used in stainless steel to make it harder. Production of the alloy may reach as high as 29 million tons this year, from 25.2 million tons last year, London-based researcher CRU Group estimates.
Supply may also expand as Rio de Janeiro-based Vale seeks to restore output from its operations in Sudbury, Ontario. Workers walked off the job on July 13 when contract talks collapsed. Vale's Canadian operations produce about 150,000 tons of nickel a year, according to Barclays Capital, which estimates global output this year at about 1.4 million tons.
"In any kind of medium view, you have to assume that the Vale dispute will get settled," Smith said.
The rally since prices bottomed at $9,250 a ton a year ago may also spur producers to restart idled capacity, the analysts said. Production fell 4.8 per cent last year and will expand 6.6 per cent this year, according to Barclays Capital, which expects demand to keep pace. The metal is still 56 per cent below the record $51,800 a ton traded in May 2007.
Prices will average $20,944 a metric ton in the next quarter, down from yesterday's $22,760 close, according to the median in a Bloomberg survey of 13 analysts. Nickel rose 23 per cent on the London Metal Exchange since January, extending last year's 58 per cent jump.
The metal is having its best start to a year since 2007 as stainless-steel output, the biggest source of demand, exceeds analysts' expectations. That advance may falter as supply from new mines adds to stockpiles already at more than three times the five-year average, the analysts said.
"Inventories are incredibly high and when the supply side starts to come back on, that means that the upside is very limited," said Dan Smith, an analyst at Standard Chartered Plc in London. He expects a second-quarter average of $16,000.
Vale SA, the world's second-biggest producer, said on March 16 that its Goro mine in New Caledonia would produce the first metal this month or next. New mine supply will likely mean production exceeds demand from next year, according to researcher Brook Hunt, a Wood Mackenzie company.
About two-thirds of nickel is used in stainless steel to make it harder. Production of the alloy may reach as high as 29 million tons this year, from 25.2 million tons last year, London-based researcher CRU Group estimates.
Supply may also expand as Rio de Janeiro-based Vale seeks to restore output from its operations in Sudbury, Ontario. Workers walked off the job on July 13 when contract talks collapsed. Vale's Canadian operations produce about 150,000 tons of nickel a year, according to Barclays Capital, which estimates global output this year at about 1.4 million tons.
"In any kind of medium view, you have to assume that the Vale dispute will get settled," Smith said.
The rally since prices bottomed at $9,250 a ton a year ago may also spur producers to restart idled capacity, the analysts said. Production fell 4.8 per cent last year and will expand 6.6 per cent this year, according to Barclays Capital, which expects demand to keep pace. The metal is still 56 per cent below the record $51,800 a ton traded in May 2007.