Stainless steel restocking to support Nickel
Robust demand for good quality stainless steel should sustain nickel prices towards the end of the year as consumer stocks will need to be replenished even if the global recession limps on.
Prices of the steel-making ingredient valued for its anti-corrosive properties fell to 5-year lows below $10,000 a tonne last October after the collapse of Lehman Brothers raised the spectre of global recession and slumping demand.
Nickel on the London Metal Exchange is currently trading at around $15,800 a tonne.
Stainless steel producers, accounting for two thirds of nickel demand, have been using stocks or producing lower quality material ever since prices hit record highs above $50,000 a tonne in May 2007.
“Extreme prices scared people away from high quality steel,” said Joel Crane, analyst at Deutsche Bank. “Our house view is that global economic recovery is a 2010 story … the restocking phase will begin a few months prior to that.”
Backing up expectations of a recovery at the end of the year was news that Finnish stainless steel maker Outokumpu recently said it would raise output capacity due to stronger orders in the fourth quarter.
Tentative signs of recovery can be seen in stocks of nickel in LME warehouses, which at around 109,000 tonnes are down from a 14-year high above 114,000 tonnes at the end of April.Also a boost for the market is a shortage of stainless steel scrap, a cheap source of nickel, which has dropped sharply this year thanks to the near total collapse in stainless production.
The shortage of scrap means mills looking to raise output will have little choice but to start buying nickel again.
“We see an improvement by the fourth quarter in line with an expected improvement in underlying demand and also the beginnings of restocking by stainless mills,” said Gayle Berry, analyst at Barclays
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