charlie aitken pro stainless steel and ni

One of the few resource bulls around at the moment.

extract: (if you want a pdf of the whole thing send me your email).

Nickel primed for a re-pricing

Every steel-making raw material – from coking coal ,iron ore, PCI coal, manganese, molybdenum, scrap and ferrochrome – is trading at record highs. Some are quite illiquid markets, but the steel producers with real demand are buying these raw materials. Hedge funds are unable to trade these markets so this is fundamental buy side demand pushing these prices. So how can this be a bubble?

There is simply NO supply side response. I know it seems simplistic but when I see HRC prices trading at about $1000 a tonne and we see stainless steel prices rising in areas going through economic doldrums (ie, Europe) then I just think it is time to wade into nickel producers, especially as there is such limited potential for an immediate supply side response.

In recent weeks, my brother Angus has been doing a lot of reading on the nickel smelting and refining industries (been a quiet few weeks) and there is some amazing detail out there that really explains why we can see another extreme spike up in near-term nickel prices, but also why they will never return to $US5–6 a pound longer term.

I believe the whole commodity story is about end customers just wanting certainty of supply, be it coking coal, nickel, or any other commodity. With prices for the end products going higher by the day, you clearly do not mind paying a bit more for input costs because you want your mill producing as much steel as possible at these higher prices.

When you see that even the hardest of all global hard-man negotiators, like ArcelorMittal, having to pay $US305 a tonne for coking coal that cost just $US95 last year, you just know this is structural change. Why? Because they have no choice because the supply side is so tight and you can risk out-finessing yourself and having to shut mills as you cannot get the raw materials.

The same is coming for nickel. People can tell you "weather and power events" led to these huge price increases in coal this year but could it also be that no mill or power station could run the risk of not getting their coal? Only 15 million tonnes of the 200 million tonnes per annum (mtpa) global seaborne coking coal was affected by Queensland weather. That in itself could not justify a 206% contract price rise.


Nickel: micro analysis of the global market

While everybody talks about how no new US oil refinery has been built for 30 years, did you know the same is true in the nickel smelting industry?

The last time a pyro laterite nickel smelter was developed was 26 years ago. The reason you have seen a global land grab from the mining majors in the nickel sector (Inco, Lion Ore, Falconbridge, WMC, etc) is that nickel production from sulphides accounts for 56% and laterites 44% of total global production, but in terms of reserves sulphides are only 28% and laterites are 72% of global reserves as shown in the graph below.