...Shaws view...no improvement..."It's time to batten down the...

...Shaws view...no improvement

..."It's time to batten down the hatches & weather out this horrible storm..... on to the report.

Key Points

• Nickel price has declined rapidly from

above US$50,000t to just over US$27,000t.

• Stockpiles of the metal are rising.

• Producer’s margins are coming under pressure.

• Profits likely to halve for many stocks for FY08 on current forecasts.

• Significant amount of supply forecast for 2009 and beyond.

• Recommendation applies to pure nickel stocks only.

How low can they go?

The nickel price has halved in three months, last night reaching a low of around $12.28/lb or just over US$27,000t. In many people’s mind it is oversold, however looking at the chart, it seems nickel may continue to be sold down in the short term, with no signs of a catalyst for change of direction on the horizon any time soon.

We have previously recommended buying select nickel stocks as trading opportunities, however we now repeal this idea in light of the savage correction in the metal’s price. Whilst we are attempting to establish what is fair value for some nickel stocks, the sliding price is doing little to add any confidence.

In our view, from a miner’s perspective the apply/demand outlook for the commodity from 2009 is bleak, assuming the numerous laterite projects around the world manage to commission successfully.

Whilst we recognise from a trading perspective there may be opportunities, for the moment we consider it too early to suggest re-entry. The profitability for miner’s is likely to have peaked for the current cycle, with some profits likely to be reduced by 50% or more for the current financial year.

We believe the market has begun to recognise this. It is worth noting that this recommendation primarily applies to stocks with pure nickel exposure, and not necessarily to other stocks we follow with additional commodity interests. They also may be sold down, however at some stage are likely to appear attractive due to the balance of other assets (ie IGO, RML, THX)."

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