Commodity Report

Gold, silver and platinum may be categorized historically as precious metals, but the prices being paid for less glamorous metals are also pushing them into the "precious" category.

The iron, nickel and chromium that go into stainless steel alloys all continue to trade at or near historically high levels, as do aluminum, copper and several minor alloying metals.

Nickel and stainless steel alloys have surged in particular in the last several months. The climb in nickel prices has surpassed gains made by many other metals in the past several quarters. And while many dealers of other metal commodities say they see possible retrenchment in the short term, most market observers see nothing but continued strength for nickel and stainless steel.

The International Stainless Steel Forum (ISSF), Brussels, has released a forecast that reflects the improving landscape. The organization has estimated that final figures will reveal 2006 stainless steel production to have jumped by 14.3 percent relative to 2005.

The increase in the first half of 2006 came on top of a similar increase in the first half of 2005. However, production in the second half of 2005 was significantly weaker than the first half of the year, according to ISSF figures. Contrarily, forecasts show that stainless steel production capacity might be fully used, although some new melting capacity is being commissioned.

The global forecast for 2006 now stands at 27.8 million metric tons of crude stainless steel.

During the 2006 meeting of the International Nickel Study Group (INSG) in Lisbon, Portugal, global representatives noted that after the middle of 2005 the production of stainless steels with high nickel content declined in most parts of the world, reducing the consumption of primary nickel and nickel-bearing scrap in the second half of that year.

Reflecting the jump in nickel markets, prices for most types of nickel have surged to record levels. In late 2006, the London Metal Exchange showed primary nickel prices topping $32,000 per metric ton, more than twice the price seen during the same time in 2005.

Players in the nickel market, through the LME, are expressing overall concern about minimal inventories on hand.

During a roundtable meeting on nickel markets hosted by the Pittsburgh Chapter of the Institute of Scrap Recycling Industries Inc., Derek Benham, president of specialty metals trader Benmet, based in New York City, noted that nickel prices doubled between Easter and the middle of 2006.

Simon Merrills, with ELG Metals, a large metals recycling firm headquartered in Duisburg, Germany, noted that the ebb and flow of inventory levels also is causing significant upward strength in the markets. The nickel inventories on the London Metals Exchange declined from around 35,000 metric tons at the beginning of the year to around 6,000 metric tons this fall. Merrills said that speculators consider this "a dream come true."

A concern for dealers in nickel and nickel scrap is lack of inventory. The situation could be more challenging in 2007. "There now is no cushion for nickel. Should demand ride ahead of supply in 2007, then the [pricing] run in 2006 will look like child’s play," Benham said.

Merrills noted that some of the decline in stainless scrap was because of cutbacks in supplies from Eastern Europe during part of 2006.

As for the future, Merrills said scrap dealers must consider whether the boom in China will continue after the Olympic Games, if global consolidation will diminish the role of the specialty recycler and the affect new production capacity will have on the market. All these factors present reasons for nickel and stainless steel scrap recyclers to keep a close eye on market-related news and developments as 2007 unfolds.

Benham concluded by saying, "For physical traders to not understand the changes is a recipe for disaster."

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