High nickel price could damage demandAllan SeccombePosted: Wed,...

High nickel price could damage demand
Allan Seccombe
Posted: Wed, 28 Feb 2007
[miningmx.com] -- THE fundamentals for the stainless steel industry remain strong, but the very high price for key ingredient nickel could prove to be a rationing factor in the sector, said LionOre CEO Colin Steyn.
Steyn did not give price forecasts for nickel, but said forecasts of global industrial production growth of six percent this year and the order books for stainless steel bode well for continued strong demand for nickel. The stainless steel market grew 15% last year.
The price of nickel has topped $20 and was last at $20.18 a pound. Steyn said it was extremely difficult to say if this could be a new platform, but he warned it could be negative for the steel market in the longer term.
Strong demand from stainless steel mills, supply disruptions and project delays have boosted nickel prices, which have climbed nearly 70 percent since January 2006, Reuters reported.
fundamentals remain very, very strongNickel inventories in LME warehouses stand at around 3,500 tonnes. But only about 1,880 — around half a day’s global consumption — are available to the market, the newswire said.

“The fundamentals remain very, very strong and, yes, there will be demand destruction in this case. That’s really what will translate into an effective form of rationing of stainless steel and nickel by virtue of price,” Steyn said.

“If the nickel price comes back to stability at least and levels it was towards the end of last year demand creation will be automatic because the underlying factors driving this demand remain healthy and intact,” he said.

Chinese stainless steel production has continued to grow to meet domestic demand amid rapid development, said John Meyer from Numis Securities.

“Clearly steel and stainless steel growth in China continues apace despite pressure from feedstock costs,” he said.

“We would expect that some of the continued growth in China would come at the expense of other producers. However, support for key raw materials from consumption is likely to continue over the year ahead as supply for these materials struggles to meet demand, benefiting those miners with product to sell,” he said.

Asked by an analyst about a potential dramatic pullback in stainless steel demand that some market watchers are beginning to anticipate, Steyn said: “I don’t have any specific sense. I know up to a couple of weeks ago that everything stable and it wouldn’t happen, but then three weeks ago nickel prices hadn’t gone over $20.”