how about us$23,900 a tonne! great old story

Dryblower: Nickel punters, place your bets


Tuesday, September 23, 2003
TIRED of playing the same old games? Bored with betting on horse races, football and which fly will reach the top of the window first? Then join Dryblower in a marvellous new sport – tipping the high point in the current nickel price cycle.

Opening bids, as far as can be found from dredging through newspapers, magazines and web-sites, are in the US$10,000-to-$12,000 a tonne range.

Worthy, and well-informed players, such as Jim Lennon at Macquarie Bank in London is one tipster in that range. In August his bank raised its 2004 average nickel price from US$9920 to US$11,465, and the average for 2005 from US$11,020 to US$12,125.

Ingrid Sternby from Barclays Capital, another prominent commentator, is forecasting continued strong upward movement in the nickel price. Dan Rolling from Merrill Lynch thinks we're in for a two-to-three year upward spike in the nickel price.

But, how high is high?

How about US$23,900 a tonne!

Oh, come now Dryblower, you've obviously had a touch too much sun in the past few days, or a touch too much of something from a bottle.

Wrong, dear reader. Dryblower did not pluck his tip for the future nickel price off a Rosemount label. He did something far smarter. He consulted his history books – well, an electronic library search engine on the internet, if you really must know.

After a bit of keystroking, and a bit of unrepeatable language, your correspondent found what he was looking for: a story from 1988 which contained the magic figure of US$23,900 – the price reached for nickel in late March of that year.

Even after converting that whopping price, caused by the same classic supply/demand crunch we are seeing today, into dollars-per-pound you get an amazing US$10.84/lb.

The point of going back to 1988, one of those years the Chinese call "interesting" because it was a period of considerable after-shocks from the 1987 share market crash, is that it shows just what the nickel price is capable of doing when demand outstrips supply – and when the hedge-fund punters join the fray.

What makes the exercise even more interesting is to go back to the original nickel boom year of 1969. That was the time of Poseidon, Tasminex and all sorts of naughty deals. In that year, nickel hit $7.40 a pound, a shadow of the almost totally forgotten 1988 boom but a pointer as to where we might be going.

Oldtimers, who can always remember bigger and better events than what's happening today, will dispute that history is in the making.

Dryblower is not so sure. He reckons that the fundamentals for nickel are truly remarkable and potentially historic. Demand, especially with China becoming "a stainless steel economy", is phenomenal – and looks like staying that way for at least another three-to-five years in the run up to the Beijing Olympics.

Supply, on the other side of the equation, is flat with only Voisey's Bay and Goro standing out as significant new sources of supply, and then only from around 2005.

What happens between now and when the big new mines come on stream?

In Dryblower's view it's skyrocket time. Supply is constrained. Demand is booming. If the nickel miners have a worry it is not the price of their metal, it is the pressure on steel producers to find substitutes, and from steel customers demanding alternatives to stainless –an interesting topic for another day.

In the meantime, if US$23,900 was good enough for '88, when the world's economy was smaller, and China was only just starting to emerge from its communist cocoon, then how about US$25,000 as a suggestion for the peak nickel price in this cycle – say, sometime in late '04, before the promise (threat?) of supply from Goro and Voisey's takes the edge off the market.

http://www.miningnews.net/storyview.asp?storyid=18760§ionsource=s88