Nickel - the metal for 2007?

[markrmau]

Could it be?

Here we have a wave 1 up to Jan04, a very messy corrective move back to wave 2 towards the end of 2005. And now it looks like an impulsive move up to a wave 3 somewhere (terminology thanks to NR).

Fundamentally, we know the iron ore market is very tight (india is now holding iron ore back from spot market for it's own steel producers). Nickel is needed for stainless production. Nickel has been ignored for the red and yellow alternatives up until recently.

 

[michael_selway]

Could it be?

Here we have a wave 1 up to Jan04, a very messy corrective move back to wave 2 towards the end of 2005. And now it looks like an impulsive move up to a wave 3 somewhere (terminology thanks to NR).

Fundamentally, we know the iron ore market is very tight (india is now holding iron ore back from spot market for it's own steel producers). Nickel is needed for stainless production. Nickel has been ignored for the red and yellow alternatives up until recently.

Hm i personally dont think so but things may change. Btw u also need to look at LME Supplies



thx

MS

 

[Kipp]

Hm i personally dont think so but things may change. Btw u also need to look at LME Supplies



thx

MS

MS, how is it that LME supplies have no bearing on Nickel prices? In the Zinc thread, everyone is getting excited that LME stocks will deplete in Oct at current rate. Nickel will be depleted in 40 DAYS at the current rate. I don't get it...
nor do I really understand why the Ni boys have been punished while Gold and Zinc prices have fallen to hell (i.e. SMY and MCR) is it just gneral bearish sentiment?

 

[rederob]

MS, how is it that LME supplies have no bearing on Nickel prices? In the Zinc thread, everyone is getting excited that LME stocks will deplete in Oct at current rate. Nickel will be depleted in 40 DAYS at the current rate. I don't get it...
nor do I really understand why the Ni boys have been punished while Gold and Zinc prices have fallen to hell (i.e. SMY and MCR) is it just gneral bearish sentiment?

Kipp
I think MS is implying that the LME situation is supportive.
Nickel stocks are leaving warehouses rapidly, and this will shortly turn into a panic (typically when under 10,000 tonnes is left and the rate of drawdowns remains robust).
Don't worry about equity prices when the fundamentals are supportive. If the price dips, buy more - especially SMY as it's well and truly oversold and undervalued by every yardstick.
Nickel prices take a lead from steel supply - if steel is in short supply, mills will crank up and consume great quantities of nickel. But steel mills are expensive to both crank up and taper off, so you get steel output to excess.
As soon as you see steel prices take a u-turn in months to come, bail out of nickel equities as the metal price will fall considerably.

 

[michael_selway]

MS, how is it that LME supplies have no bearing on Nickel prices? In the Zinc thread, everyone is getting excited that LME stocks will deplete in Oct at current rate. Nickel will be depleted in 40 DAYS at the current rate. I don't get it...
nor do I really understand why the Ni boys have been punished while Gold and Zinc prices have fallen to hell (i.e. SMY and MCR) is it just gneral bearish sentiment?

Yeah Nickel Prices hasnt fallen as much



I guess the underlying demand/supply and future demand/supply is the most important. The thing about LME Nickel supplies by looking at the chart only:



is that about 12 months ago, Nickel LME supplies were only 5000 tonnes, much lower than today, yet prices are higher now than when supplies were lower?



Also during the last financial yr, Nickel LME Stocks were actually increasing at quite a fast pace, but for soem reason starting in Jan 06, its going down again?

Would you suspect speculative fund buying in which case they can dump just as fast (it dropped to $5/lb in Nov 05)? or is it start of a "genuine" downward trend, ie demand > than supply?

This relative unknown is where the risk lies. Contrast that with Zinc

Zinc - Outlook for 2006

8. Global usage of refined zinc metal is forecast to increase by 4.8% to 11.19 million tonnes in 2006. Growth will be strongest in Asia where demand is forecast to rise by 7.3% in China, 9.1% in India, 4.5% in Japan and 4.4% in the Republic of Korea. Demand in the United States is expected to recover by 11.4% after falling steeply in 2005. In Europe, increases in Finland, Germany, Poland, the Russian Federation and Spain will be partially balanced by falls in Belgium, France and Italy resulting in an overall rise of 1.4%.

9. It is anticipated that global zinc mine output will increase by 4.5% to 10.42 million tonnes. Production in Australia is forecast to rise by 8.9% and in India by 10%. European output will benefit from increases in Greece, Ireland, the Russian Federation and Sweden and is expected to rise by 8%.

10. A further 4.3% increase in world refined zinc metal production to 10.71 million tonnes in 2006 will be influenced primarily by rises of 8.6% in China and 44% in India. Increases are also forecast in Australia, Belgium, Canada, Kazakhstan, the Republic of Korea and the Netherlands.

11. Chinese net imports of zinc metal are forecast to rise to 285,000 tonnes. It is expected that most of this material will continue to be sourced in Kazakhstan.

12. Overall, after also having taken into consideration release from the United States Defense National Stockpile, the Group continues to anticipate a substantial deficit in the Western World refined zinc market. Current forecasts indicate a shortfall of 437,000 tonnes

http://www.ilzsg.org/archives.asp?go=getarchive&num=132
http://www.icsg.org/News/Press_Release/PressReleaseStatsApr06.pdf
http://www.insg.org/insg.htm

 

[rederob]

Watch this space:
Nickel inventories fell a stunning 14% or 3,018 tonnes during the week.
At the same time, the proportion of cancelled warrants to total increased, implying more sharp inventory falls to come.
This is also the time of year when Norislk has trouble getting its nickel from Dudinka to European ports due to the Yenisei River becoming unnavigable. With Nickel closing the week at $23,000 per tonne - a contract record high - we are likely to see a tilt at $25k in the near term.
My favourite little nickel play, Sally Malay (SMY) is heading for an exceptionally profitable year.

 

[Kipp]

Watch this space:
Nickel inventories fell a stunning 14% or 3,018 tonnes during the week.
At the same time, the proportion of cancelled warrants to total increased, implying more sharp inventory falls to come.
This is also the time of year when Norislk has trouble getting its nickel from Dudinka to European ports due to the Yenisei River becoming unnavigable. With Nickel closing the week at $23,000 per tonne - a contract record high - we are likely to see a tilt at $25k in the near term.
My favourite little nickel play, Sally Malay (SMY) is heading for an exceptionally profitable year.

The comforting thing is that even if Ni does see a correction back down to $20K/tonne all the Ni producers would still be making a squillion.
why is SMY your favourite play?

 

[specman]

I wouldn't get too excited about nickel yet.Looking at the 1 year LME stock chart,nickel was down below 8000 mid last year and made a swift recovery.The crucial factor is what is happening with mining supply.Are we going to see a flood of nickel suddenly appear?Does anybody have information on this?

I like zinc more because there has been little exploration in the past,it takes years to open new mines and supply is not going to catch up before 2008 maybe later.Zinc demand is also fairly inelastic.

 

[michael_selway]

I wouldn't get too excited about nickel yet.Looking at the 1 year LME stock chart,nickel was down below 8000 mid last year and made a swift recovery.The crucial factor is what is happening with mining supply.Are we going to see a flood of nickel suddenly appear?Does anybody have information on this?

I like zinc more because there has been little exploration in the past,it takes years to open new mines and supply is not going to catch up before 2008 maybe later.Zinc demand is also fairly inelastic.

exactly the current demand/supply and more importantly the future demand/supply for Nickel, however live warrants is decreasing atm. But again it could increase fast any time if current Demand < Supply

 

[specman]

Here's some interesting info for some of you nickel bulls out there.

I did a bit of googling and it appears that at least 5 automobile manufacturers are planning to use nickel-metal hydride batteries to power their gasoline/electric hybrid vehicles for the 2007/2008 models.Demand for hybrid cars has been accelerating since 1999 and will only get more popular with high petrol prices.

 

[Kipp]

Demand for hybrid cars has been accelerating since 1999 and will only get more popular with high petrol prices.

Not in Australia it hasn't... fuel $1.40/litre and still idiots drive 4WDs in Melbourne. Would love to hybrids take off, even if it requires a little government subsidy..l. and not just for Nickels sake!!!

 

[michael_selway]

Not in Australia it hasn't... fuel $1.40/litre and still idiots drive 4WDs in Melbourne. Would love to hybrids take off, even if it requires a little government subsidy..l. and not just for Nickels sake!!!

http://quote.bloomberg.com/apps/news?pid=10000080&sid=aOeQTA4M2VYs

Nickel May Extend Record Gains as Inco Strike Looms (Update1)
May 29 (Bloomberg) -- Nickel prices may extend record gains on buying by hedge funds and other speculators if workers go on strike at Inco Ltd.'s operations in Canada, which could cut global supply of the metal by eight percent.

The union representing more than 3,000 workers at Inco advised its members yesterday to reject a contract offer from the world's second-largest producer of nickel, which is used to rustproof steel. Workers will vote May 30 and May 31 on the offer, the union said. The current contract for employees running Inco's operations in Sudbury, Ontario, expires May 31.

``Nickel prices may reach $25,000 a ton very soon,'' said Le Yuemin, assistant general manager of Ningbo Tenglong Stainless Steel Products Co., which he described as China's biggest producer of such products. ``I don't think we have seen the top, given the tight supply,'' he said by phone today.

Nickel prices have increased 70 percent this year and reached a record $23,050 a ton on May 26 as investment funds bet supply won't meet rising demand from stainless steelmakers such as Arcelor SA. Stockpiles of the metal monitored by the London Metal Exchange have fallen 48 percent this year.

Any protracted strike at Inco's Sudbury operations would lift nickel prices, according to Eramet SA, the world's largest producer of ferronickel, an alloy used in stainless steelmaking.

``We can have events like a strike at the end of this month at Inco,'' Francois-Gabriel Sauvage, Eramet's executive vice president, said in an interview May 22 at a conference in Shanghai. ``If the strike stays more than two to three months, of course it could be tense on the market.''

Labor Talks

Inco, which is in a bidding war with Xstrata Plc to buy Canadian copper and nickel producer Falconbridge Ltd., has been negotiating with the union since April on a new labor accord for employees at its operations in Ontario's nickel-rich Sudbury basin. The union is seeking a no-layoff provision, higher wages and better benefits amid rising nickel prices.

``We think it's a good offer, otherwise we wouldn't have put it forward,'' Inco spokesman Cory McPhee said yesterday in an interview. He declined to provide details of the offer until after union members have voted on it.

Before Inco negotiated the current agreement in 2003, a three-month strike by 3,300 miners and production workers cut output by 30,000 tons, driving nickel prices 5.4 percent higher.

Toronto-based Inco said last month demand for the metal will outpace output this year because of more use by stainless steel producers, which consume about two-thirds of global supply. Fund investments in commodities may exceed $120 billion by 2008, up from $80 billion last year, according to Barclays Plc.

Money Flows

``There are huge money flows going into the commodities market,'' Geoff Boyd, a CLSA Asia-Pacific Markets analyst in Singapore, said an e-mailed reply to questions on May 17. Nickel prices are partly ``rising on speculation in the commodities by hedge funds,'' he said.

Nickel demand will rise 8.1 percent this year and mining companies will boost production by about 5.4 percent, the Lisbon-based International Nickel Study Group said last month. Minara Resources Ltd., Australia's second-biggest nickel producer, said in March it expects demand for the metal to grow between 4 to 5 percent in 2006 as consumption rises in Asia.

``It appears that the nickel market is tight,'' Rohan Kendall, a metal analyst at the Australian Bureau of Agricultural and Resource Economics, said in a e-mail May 18. ``This provides support for the recent rise in prices which has been compounded by activity from fund managers and speculators.''

China's Demand

Nickel demand in China, which last year replaced Japan as the world's biggest user of the metal, may climb 15 percent to 225,000 tons this year, as rising incomes spur consumption of washing machines and cars which use stainless steel, Andrew Harrington, an industry analyst at the Australia & New Zealand Banking Group, said from Sydney on May 17.

The metal may rise as high as $28,000 driven by demand from stainless steelmakers, Li Long, president of the China Stainless Steel Council, said May 22.

Sumitomo Metal Mining Co., Japan's biggest nickel producer, forecasts global nickel supply this year will exceed demand by 6,000 tons, assuming there is no disruption, Masahiro Kamiya, manager of its nickel business unit, said in Shanghai May 22.

Prices of hot-rolled coil stainless steel imported into China, a benchmark in Asia, have risen 33 percent this year to $2,650 a ton as of May 19, the highest since 1995, according to London-based Metal Bulletin Plc. This also reversed last year's 19 percent drop in prices.

``Stainless steel prices are too high,'' Ningbo Tenglong's Le said in an earlier interview May 23 on the sidelines of a stainless steel conference in Shanghai. ``In the next two months, they will still rise because of high nickel prices.''

Substitution Threat

To be sure, a further rally in nickel prices may be capped by the threat of substitution, Mark Pervan, head of research at Daiwa Securities SMBC, said from Melbourne on May 17. ``Nickel is vulnerable to substitution, like we saw in 2005.''

Stainless steelmakers last year used less nickel, choosing to use more manganese and molybdenum to increase the strength and anti-corrosive properties of the alloy. In contrast with the gains in nickel prices, molybdenum prices gained 10 percent this year to $61 a kilogram as of May 12, while manganese has fallen 18 percent, according to Metal Bulletin.

Table of Forecasts on Nickel Prices, Demand-Supply Balance

Company Average Price Forecast* Demand-Supply**
ANZ Bank $13,500 8,000-ton surplus
ABARE $13,705 4,000-ton surplus
AME Mineral $15,278 2,000-ton surplus
Deutsche Bank $15,520 4,000-ton surplus
Daiwa $17,703 7,500-ton surplus
Sumitomo Metal -- 6,000-ton surplus
Eramet -- 30,000-ton surplus

*in dollars a metric ton, basis LME cash.
**measures how much supply will exceed demand by in metric
tons.
Analysts' forecasts gathered on May 17 and reconfirmed on
May 22. They don't include the impact of an Inco strike.
Sumitomo's and Eramet's forecasts were given May 22 in
Shanghai.

 

[nizar]

What are the best stocks to buy that give exposure to nickel?
ie. the ones that are producers unhedged that move well with the nickel spot price

Any ideas?

 

[michael_selway]

What are the best stocks to buy that give exposure to nickel?
ie. the ones that are producers unhedged that move well with the nickel spot price

Any ideas?

JBM, MCR, IGO, SHN, MRE, NKL?

however all of them appear to have specific risk, that is, mine problems or short mine life?

thx

MS

 

[Archinos]

Although not a producer, DNL is not far from a scoping study for the Dikoloti Nickel prospect. They've also got potential for copper-silver at their Maun prospect- expect results on both fronts soon.

 

[Kipp]

JBM, MCR, IGO, SHN, MRE, NKL?

however all of them appear to have specific risk, that is, mine problems or short mine life?

thx

MS

I think SHN is still in the red....

 

[michael_selway]

MS, how is it that LME supplies have no bearing on Nickel prices? In the Zinc thread, everyone is getting excited that LME stocks will deplete in Oct at current rate. Nickel will be depleted in 40 DAYS at the current rate. I don't get it...
nor do I really understand why the Ni boys have been punished while Gold and Zinc prices have fallen to hell (i.e. SMY and MCR) is it just gneral bearish sentiment?

Nickel quite alot "in" today, but look at Copper and Aluminum, so much "in", which adds to the live warrants

thx

MS

 

[rederob]

Nickel quite alot "in" today, but look at Copper and Aluminum, so much "in", which adds to the live warrants
[/QUOTE]
MS
You need to watch the [B]rate of change of cancelled to total [/B] to get a better picture of trend.
We are enamoured to zinc because it is flowing out of warehouses at a rapid clip. However, the cancelled to total ratio has benn declining for many weeks.
It's not always quite that easy.
Copper's increase was isolated to a single large warranting at LME Singapore, most likely from China's State Reserve Bureau. If that is true, then copper is fundamentally stronger, because warrantings from metal producers should generally flow into exchange warehouses. Inventory and the like that flow into warehouses to take advantage of high spot prices simply make the overall market tighter going forward.

 

[michael_selway]

MS
You need to watch the rate of change of cancelled to total to get a better picture of trend.
We are enamoured to zinc because it is flowing out of warehouses at a rapid clip. However, the cancelled to total ratio has benn declining for many weeks.
It's not always quite that easy.
Copper's increase was isolated to a single large warranting at LME Singapore, most likely from China's State Reserve Bureau. If that is true, then copper is fundamentally stronger, because warrantings from metal producers should generally flow into exchange warehouses. Inventory and the like that flow into warehouses to take advantage of high spot prices simply make the overall market tighter going forward.

Hi Rederob, can I ask a question

Ok lets say below all of the Zinc 72775 Cancelled Warrants became "out". Everything else stays as it is. Therefor there is no Cancelled Warrants and 166k Live Warrants (total = 166000)

1) Next day lets say 16000 become Cancelled. So 16000/166000 = 9.64%
2) Next day lets say 16000 become Cancelled and 16000 become "out" from Cancelled Warrants. So 16000/150000 = 10.66%
3) Next day lets say 16000 become Cancelled and 16000 become "out" from Cancelled Warrants. So 16000/134000 = 11.94%

rate of change of cancelled to total

So based on the above quote its negigible the % increases? what does it mean anyway?

However live warrants have dropped alot?

118000/166000 = 71.08% or about 29% drop in 3 days?

thanks

MS

 

[rederob]

MS
Your example shows a clear trend - 2.4% percentage point change in 3 days is not "negligible".
Another way of doing the maths on your scenario suggests that the variation was almost 25% in those 3 days, viz 2.4/9.6 - so isn't that an interesting take!
You can chart the rate of change, and with even "negligible" variations it may be possible to notice a "steady" trend, rather than a robust one.
If you are a daily follower of the fundamentals, these trends are often quite obvious.
On the nickel front, it is blatantly obvious that the fundamentals are tightening more rapidly by the day, with an overnight cancellation accounting for over 6% of total warranted stock - bringing the cumulative share of cancelled to total stocks to 20%.
The problem we have with the maths as the denominator gets smaller, is that the statistics tend to become meaningless and should be ignored to a large degree: Concentrate on the raw numbers and trends.