Shiny Future

Volatile markets for many nonferrous metals may be causing some concern, but dealers of nickel and stainless express strong bullish sentiments for the year to come.

Copper may have captured most of the headlines during the past year, but the climb in nickel prices has far surpassed gains made by many other metals throughout 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.

Benham noted that nickel prices doubled between Easter and the middle of 2006.

Simon Merrill, with ELG Metals, a large metals recycling firm that is 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. Merrill said that speculators consider this "a dream come true."

At press time, LME was reporting inventory stocks falling even lower, to less than 4,500 metric tons, the lowest level since the early 1990s. The shortage of inventory, along with several company-specific issues, will cause further upward pressure on nickel and stainless markets in the short term, according to the predictions of several market analysts. Adding to the declining inventory levels, reports as recently as Oct. 10 had nickel inventories on the LME declining to less than 4,000 tons, the lowest level since 1991. Of that amount, only approximately 2,140 metric tons of global consumption would be available for the market.

Inco’s prolonged strike at Voiseys Bay, Ontario, has reduced the supply of nickel on the market. Even with a resolution of the strike, it will likely be an extended period of time before the company can build up the supply of nickel on the market.

Benham noted that Voiseys Bay was slated to supply from 55,000 to 60,000 tons of new production per year, or roughly 5,000 tons per month. "Every day the strike is on, it will affect production next year. There is no cushion this year," he added.

The other potential problem is the political strife besieging Inco’s project in New Caledonia. As labor problems slow this project, new capacity to help boost inventory levels is becoming more challenging.

Jean Michel Beyasserie, president of Eramet North America, a global nickel producer, said nickel plate is now running at full capacity. Threats of disruption this year have been looming. "There isn’t enough scrap on a worldwide basis," Beyasserie noted.

Along with the strike at Inco’s facility, Beyasserie said that other nickel projects are off to a slow start. Even with new capacity coming on line, he said he felt it will not be enough to keep pace with demand in the long term.

As for stainless steel, which is the major driver for nickel, Beyasserie noted that even with high nickel prices, inventories of stainless at distributors and service centers have been low, especially during the second quarter of this year.

One area that isn’t playing much of a factor in the nickel market has been China. According to the speakers at the ISRI roundtable, nickel markets aren’t truly being heavily influenced by Chinese activity. Benham said that during the first seven months of this year China imported 41,000 tons of refined nickel, about 3.5 percent less than what the country took in during the same time last year.

However, while imports of nickel to China have declined, exports of refined nickel from China numbered 10,600 tons during the first part of this year, an increase of 16 percent from the same period in 2005.

While China is still a net importer of nickel, it is more likely buying cheaper nickel concentrates. Much of the concentrate supply is coming from Australian mines that weren’t producing three years ago, meaning that the increased orders from China were met by new capacity.

Merrill said that China would be the major growth driver for stainless steel scrap as it adds capacity. This year China became the world’s largest producer of stainless steel and is expected to continue to add capacity. Chinese stainless production is expected to increase by 30 percent this year, resulting in China producing close to 17 percent of all the global stainless steel.

While the big concern for dealers in nickel and nickel scrap is the lack of inventory, the situation could become more challenging in the short term. "There now is no cushion for nickel. Should demand ride ahead of supply in 2007, then the run in 2006 will look like child’s play," Benham said.

Merrill noted that some of the decline in stainless scrap was because of cutbacks in supplies from Eastern Europe. The decline from this region of the world was partly because of weather conditions as well Eastern Europe’s delay in adjusting to the changing dynamic. However, by the second quarter of this year, supplies began to improve. Supply also is expected to pick up because of much higher prices for the scrap commodities.

As for the future of the nickel and stainless market, Merrill said scrap dealers must weigh several issues, including whether the economic boom in China will continue after the Olympic Games, if global consolidation will diminish the role of the specialty recycler and the affect new American capacity will have on the market.

All of these factors present critical 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."