nickel

Big falls in the nickel price, and to a lesser extent in uranium, have seen shares in companies mining these, or exploring for them, fall dramatically, but have these falls been overdone?

Author: Lawrence Williams
Posted: Sunday , 19 Aug 2007

LONDON -

Bring together huge and rapid price increases predicated on current, or projected, supply shortfalls in tight markets and you have the ingredients for almost equally rapid falls as soon as sentiment, or the market situation, changes. Add in huge general market nervousness and the ingredients for a stock price - or commodity price - meltdown are well in place.

But one thing one can learn about market sentiment is that, just as price rises can be overdone to the nth degree, so can price falls - particularly when fundamentals are in reality little changed.

We have seen in the past year huge price rises in most base metals with nickel the prime example when it was caught in a supply squeeze, with low inventories, supply interruption problems and huge continuing demand. Since its high point in May, the nickel price has more than halved and stocks are continuing to increase as buyers hold off. There has been substitution in stainless steel manufacture, but the utilisation of differing alloying materials gives different qualities to the stainless steel produced and it would seem likely, now that prices have fallen to the extent they have, that stainless steel manufacturers will start to restock and revert to higher demand levels.

It would thus seem possible that the rapid price decline has been overdone - as was the rapid price rise before it. As prices stabilise, and with the old supply and costs restraints which affect this sector, it would seem far from impossible for the nickel price to resume its upwards path - but almost certainly not at the pace seen at the beginning of this year and late last.

The constraints on nickel revolve around the general move from principal supplies coming from easier to process sulphide orebodies to expensive, and complex, laterite metallurgy. The laterite projects - and there are some huge ones in the pipeline - have often been beset by startup delays and cost overruns, so there could still be temporary supply shortages ahead of us.

The turning polnt in the PON? I think so. I don't know what relavance this has to AGM but i thought it might interesting and a change of pace to the previous comments.
RAB