DJ Nickel Could See 27,000 Tons Deficit In 2006 - Macquarie
LONDON (Dow Jones)--Strong demand from the stainless steel industry could see nickel in a deficit of over 27,000 metric tons at the end of 2006, wiping out 2005's surplus and taking market stocks back to historic lows, Macquarie Bank Ltd. (MBL.AU) said in a report Monday.
Monday, nickel prices on the London Metal Exchange reached a record high of $19,650/ton for three-month delivery. Prices have risen 10% during the last week alone.
"The massive run-up in nickel prices in recent weeks has taken the market by complete surprise and has led to panic in the main end-use sector for nickel, stainless steel," Macquarie said. Around two-thirds of total nickel demand is from the stainless steel sector.
While nickel's fundamental outlook has strongly improved with reports of a massive recovery in stainless steel orders - up 60% year-on-year in Germany for the first quarter - part of the price rise also appears fund-driven, Macquarie said.
Demand from the stainless steel industry has rebounded after falling 8% year-on-year during 2005 due to destocking. This followed expectations of a downturn in stainless steel prices due to overc apacity and production.
"Following destocking, we may now return to a period of massive over stocking in stainless steel," Macquarie said.
Global stainless steel production was up 6% during the first quarter 2006, according to Macquarie estimates - this could rise to 16% during the second quarter and even more during the third.
A labor contract expiry at Inco Ltd.'s (N) Sudbury operation at the end of May adds to concern on nickel availability.
Sudbury is due to produce 112,000 tons of nickel in 2006.
"Last time the three-year labor contract expired in 2003, there was a three-month strike at these operations," Macquarie said.
