..."Kate Hayc ck - MINING NEWS
Wednesday, 27 June 2007
ANALYSTS at Deutsche Bank have said the correction to the nickel price is a "healthy development" for a market still facing robust growth and low global supply, with prices to stay strong until 2010.
In a research note analysts characterised the nickel price correction as a short, sharp price shock that was needed to bring nickel prices back down to earth.
The spot price of nickel on the London Metal Exchange has fallen from a high of $US54,050 a tonne since May 15 to a low of $36,735/t on June 20.
Nickel closed at $37,660/t on the LME overnight.
Deutsche Bank was bullish on the commodity and said the price falls would help sustain the market for the metal in the long term.
"We believe the correction to be a healthy development in the global nickel market that will simultaneously help placate disgruntled industry participants, bring stainless [steel] prices to more sustainable levels and reduce the risk of substitution," the bank said.
The bank pointed to changes to LME trading rules, fear of cuts to Chinese stainless steel production rates to prevent oversupply and the issue of nickel substitution as the key drivers of the correction.
It also noted that LME stocks of nickel remain extremely low, despite changes in trading rules leading to an ease in supply, with less than two days of consumption in stockpiles.
As for stainless steel production control policies in China, Deutsche Bank said that while a reduction in production will have a negative effect on nickel prices short-term, "the move was necessary to prevent a vicious cycle of a slowdown in stainless demand as a result of elevated prices".
"While it will take time to determine the effect of the Chinese producers' output reduction, we suspect the end result will eventually bring prices down to a more sustainable level and reinvigorate demand," the bank added.
Analysts at the bank also downplayed the role of nickel substitution, pointing out that greater production of lower-quality products does not mean steel consumers will want those products.
Instead, consumers of high-grade stainless steel would delay purchases until prices became more reasonable.
The bank said the combination of limited refined nickel production growth and strong demand would continue to support prices until 2010, and maintained its nickel price forecasts of $37,479/t for the third quarter of this year and $36,376/t in the fourth quarter."
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NIA
niagara mining limited
