24 Jul 2009 12:03

Guest column: Chinese nickel prices to continue uptrend in Q3

In this week's Interfax guest column, Fan Runze, an analyst with Beijing Antaike Information, discusses the short-term nickel price trend for domestic and international markets. Translated from the original Chinese by Ginger Ding.

By Fan Runze

Shanghai. July 23. INTERFAX-CHINA - Domestic nickel prices have surged from RMB 90,000 ($13,175.81) per ton at the beginning of April to almost RMB 126,000 ($18,446.13) per ton, representing an increase of 40 percent.

Rising prices of domestic nickel, which followed international nickel prices over the second quarter, was largely attributable to the influx of speculative funds.

The three-month nickel contract on the London Metal Exchange expanded by 60 percent from the beginning of April to $16,250 per ton on July 22.

Contributing factors include the U.S. Dollar Index, which tumbled from a high of 86 points at the end of March to 78 points in early June, and stood at around 80 points towards the end of June. Investors concerned by possible inflation due to the depreciation of the U.S. dollar bought significant quantities of base metal commodities to hedge against future risks, which resulted in the rally of nickel prices.

Meanwhile, the LME's total daily nickel stockpiles during the second quarter stood at around 100,000 tons. If it was not for China's huge import volumes, the stockpiles might have exceeded the previous record high level of 148,000 tons seen at the end of 1994.

Although China substantially increased nickel imports in the second quarter, the recovery of its nickel consumption was limited. It is expected that nickel stockpiles on the domestic market may have reached 80,000 tons due to previous stockpiling of nickel by traders when prices were low. The high stockpiles could put pressure on domestic nickel prices in the year ahead.

According to the latest forecasts, the global nickel market will see a surplus of 1,000 tons in the third quarter, with production of 313,000 tons and consumption of 312,000 tons.

That said, global nickel supply may see some disruption as it will take time for nickel from producers that have just resumed production to reach the market. Also, the strike at Vale Inco's Sudbury Nickel Mine in Canada will extend into September 2009. Furthermore, in the coming quarter, the U.S. dollar may further depreciate, supporting nickel price rises.

International average nickel prices are expected to stand at between $14,000 per ton and $15,000 per ton in the third quarter while nickel prices on the domestic market are likely to continue their uptrend to between RMB 120,000 ($17,567.75) and RMB 130,000 ($19,031.72) per ton.

Nickel price corrections are expected in the fourth quarter.

The above is a personal opinion piece by the author. Its publication in no way implies that Interfax shares the views expressed in the article.