Nickel - the metal for 2007?

[michael_selway]

Agreed.
Except that if you look at equity prices v's nickel you will note a disparity.
Equities have already tailed off in anticipation.
I think nickel will drop below $20k quite quickly (after the bubble bursts), but probably consolidate around that level unless supply rebounds strongly.

In the interim, benchmark LME prices will guarantee that producers will reap in this quarter the highest returns received in a generation. And these profits will feed into bottom line profits.
Accordingly, I anticipate nickel producers will be re-rated by analysts and this is likely to feed into "accumulation" and higher equity prices in months to come.

See the thing is, brokers/analysts never value a stock based one 1 years return, not matter how good it is. Thats why Mine Life is important

This quarter they earn heaps more, but what about average for the year? what about next year? and the next? are there any risks?

These issues will used to value these companies etc

thx

MS

 

[rederob]

See the thing is, brokers/analysts never value a stock based one 1 years return, not matter how good it is. Thats why Mine Life is important
This quarter they earn heaps more, but what about average for the year? what about next year? and the next? are there any risks?
These issues will used to value these companies etc
thx
MS

I read what analysts say, but I do my own research.
I usually am buying when most others are selling.
In terms of nickel mine life, I think Minara has the best reserves in Australia, and possibly in the world - another 40+ years at present rates

 

[brerwallabi]

I am sticking backing nickel, great article below.
Nickel Bull Market

Scott Wright September 1, 2006 2713 Words

Today’s powerful commodities bull market has been host to a myriad of commodities enjoying varying degrees of success as the greater secular trend marches higher. Base metals though have been in a league of their own in the last twelve months. The workhorses of this bull, precious metals and energy, have even taken to the crowd of recent in order to witness the march of the industrial metals.

As is apparent to astute observers, the global economy has kicked into high gear the last half decade or so. And base metals serve as key ingredients that lay the structural foundation of this global build out. Led by Asia’s voracious appetite for the natural resources that are required for such undertakings, global warehoused stocks of the critical metals necessary for this growth have been devoured.

Mixed with a dollop of speculative fervor, simple economic fundamentals have been the true drivers of this global resources pinch. Demand for the metals that feed this build out has paced well ahead of supply in recent years causing inventories to dwindle and forcing the producers that bring the metals to market to scramble to keep up.

The major base metals that have driven this amazing rally in the last twelve months are aluminum, copper, zinc, nickel and lead. Though these metals are not precious, have no store of value and are still known to have vast untapped resources, their innumerable industrial uses are absolutely invaluable and when a supply imbalance occurs, their commoditized nature can take the markets by storm.

To give you an idea of how base metals have performed so far in this bull market, below are their bull-to-date and 2006 peak gains. And in order to give perspective to the wild ride these metals have been on, I’ve included the same performance data for the precious metals.


Precious Metals:

Silver +272%, +65%

Platinum +221%, +36%

Gold +181%, +36%


Base Metals:

Nickel +629%, +138%

Copper +575%, +88%

Zinc +450%, +109%

Lead +263%, +32%

Aluminum +145%, +39%


The right-side 2006 gains reveal how these metals have done from the beginning of the year to their recent peak. For the majority of these metals the low point for the year took place on this year’s first trading day, but it should be noted that lead is the exception as it took a pounding in the second quarter and fell well below its beginning-of-the-year price. It is definitely the weakest of the base metals in 2006, but lead’s resilience this quarter has driven it back above its beginning-of-the-year starting point.

As you can see not only in the bull-to-date gains but in the 2006 gains, base metals have rocked the commodities world. Copper is typically the most talked about of the base metals among the mainstream gabbers as its amazing gains partially tell the story of its fast-growing world demand. But copper is not the leader of this group as far as gains go. Have a look at nickel!

Nickel has had an incredible run early on in its own young bull market. From its low in late 2001 of $2.00 per pound, nickel has experienced little letup in its push to its very recent all-time high of $14.60. And nickel has been the talk of the town in global futures markets in the last month as it recently eclipsed the $30,000 per metric ton (1 metric ton = 2,205 pounds) mark for the first time in its 27 years trading on the London Metal Exchange! The 600%+ gain nickel has put up in just the last five years is typically unheard of in any trending market, but the fundamentals of this finite metal might call for it to push even higher as the great commodities bull of the 00’s charges forward.

So what makes this metal that the U.S. five-cent coin is named after so special? Well first it is interesting to note that a U.S. nickel is actually only comprised of 25% of its namesake with copper accounting for the balance.

Aside from its use in minting though which accounts for only a fraction of its global consumption, nickel has excellent fundamentals among many of its irreplaceable functions. Its main use is as an alloy in stainless steel which commands over two-thirds of its global demand. It is also heavily relied upon in various non-ferrous alloys, jet engines, manufacturing plant equipment, CD and DVD pressing and rechargeable batteries.

But as mentioned earlier, it is simple economics that ultimately explain nickel’s rise. Demand has continued to outstrip supply. Just last week Charles Goodyear, CEO of top global miner BHP Billiton, reiterated the strong fundamentals that base metals, in particular nickel, should continue to exhibit. As the world’s third largest nickel producer, BHP has a good pulse on the market for this metal and foresees 2006 global nickel production coming in over 20,000 metric tons short of expectations.

Mr. Goodyear cites “disruptions in the current market environment” as one of many reasons for the current high base metals prices and expected production shortfalls. Mr. Goodyear goes on to explain, “there is a limited availability of resources to tap into to bring more metal into a very tight market, and there are lengthy regulatory processes to go through to bring resources into production … the machines and people needed to exploit these resources are also in high demand and difficult to secure … the disruptive factors come from weather, exhausted machinery in an industry operating at full capacity for three years and industrial action by unionized workers pushing for higher wages.”

Mr. Goodyear does an excellent job outlining the essence of this base metals bull and many of the underlying factors driving its core strategic strengths. And nickel in particular has been pushed to its recent heights partially due to its rarity as compared to the other major base metals.

As measured by volume, the mined nickel brought to market each year is significantly less than the other major base metals. Aluminum has the highest volume with over 31 million metric tons mined annually, more than twice as much as copper which is the next closest. Nickel ranks at the bottom of these major base metals with mined volume half that of lead measured at 1.5 million metric tons in 2005.

But interestingly, nickel production has not been lagging over the years. In 1994 there was less than 1 million metric tons of nickel extracted from the earth and each subsequent year the volume has incrementally increased. But shockingly a 66% increase in global nickel production over the last twelve years has still come short of fully meeting demand.

According to the U.S. Geological Survey, since 1950 stainless steel production in the Western world has been growing at an average rate of 6% per year. And with Chinese demand continuing to skyrocket since the turn of the century it is no wonder record 2005 mine production still fell short of demand.

Even the conservative International Nickel Study Group estimates there could be a nickel shortfall of over 6,000 metric tons in the first half of this year as other sources cite even more of a spread. As hinted at earlier, the result of this strong nickel demand has led to global warehoused stocks being pilfered down to alarmingly low levels.

This year alone the LME has seen its warehoused nickel supply plunge by a staggering 83% with recent reports showing current supply of less than 7,000 metric tons. This is the equivalent of less than two days worth of global nickel consumption and goes a long way in explaining why speculators and consumers alike are worried about future nickel supplies.

This first chart dissects nickel’s current young bull market, but it is nickel’s recent breathtaking ascent that has us talking about it today. Since November 1, 2005, just ten short months, nickel has climbed a near-parabolic 179% to jaw-dropping levels. Where it will balance and consolidate from here is anybody’s guess, but at worst I believe this recent drive is psychologically preparing consumers to view $8.00 nickel as an acceptable and possibly even cheap baseline.

The first thing you may discover in looking at nickel’s bull run is that this recent parabolicesque upleg was not its first. Toward the end of 2003 nickel exited its orderly ascent and carved its first parabola rocketing 130% higher in just six months.

Nickel was not the only metal to experience this late 2003 price surge and I believe this was the result of what I like to call the China Effect. During these waning months in 2003 speculators finally got a good grasp of the current and future impact China was having on the base metals markets and painted a bullish fundamental picture going forward hence sharply driving up the prices.

But as with all parabolic surges, regardless of the driving factors, there are consequences investors and speculators must bear as euphoria gets out of hand. As is apparent all throughout market history, in order to balance sentiment corrections are necessary even in bull markets. And in early 2004 nickel bled 41% after its parabola reached its apex.

Thankfully in secular bull markets corrections usually do not fully give up the ghosts of their previous uplegs. And since commodities bulls are not driven by concept but rather economic fundamentals, the greater strategic uptrend will grind higher achieving higher highs and higher lows until a sustainable balance for these finite resources can be achieved. So corrections in these types of markets have nary a symmetrical look as compared with their previous uplegs.

 

[brerwallabi]

Second Part of article.

With this in mind, nickel provides a prime example of a unique characteristic base metals have shown as their prices thrust higher. Unlike gold or gold stocks, where uplegs are typically followed by corrections that lead to consolidations well below their apex, base metals tend to consolidate in a flag pattern near their top until they are ready to charge forward once again.

After nickel’s early 2004 correction it continued in an uptrend that developed a new support zone just about in line with where its original support was before the parabola. This uptrend though remained inside of a greater trend channel that confined nickel in a sideways consolidation that lasted for over two years. Nickel climbed to just over $8.00 per pound at the apex of this first parabola, and remained in a sideways grind that saw it bounce between $5.00 and $8.00 until it finally broke out in April of this year to achieve a fresh high.

And this latest powerful upleg in nickel is something to behold. It even makes the other base metals look like underperformers! On May 11, the base metals finally looked like they had reached the apex of their second powerful upleg. Since this time, aluminum, copper, zinc and lead have been in a sideways consolidation just below their May 11 peak. But as you can see in this next chart, nickel has taken on a life of its own separating itself from the base metals herd.

As the other base metals have appeared to settle into an orderly post-upleg consolidation after their May tops and initial sharp corrections of -24%, -26%, -31% and -25% for copper, zinc, lead and aluminum respectively, nickel chose to take a different path. After a quick -19% nine-trading-day breather from its initial May double top, nickel has proceeded to march higher. And higher and higher, continuing to shatter its own highs bringing us to the levels we see today.

Though I hardly think nickel can maintain these levels and gains without at least some sort of temporary crash, correction or consolidation, why the deviation from its counterparts?

Other than overly thinning global inventory, there is no single event that can be isolated as the catalyst for this move. It’s not like any of the top global nickel mines sunk into the earth’s crust or nickel itself became the only accepted global currency overnight. But with today’s solid nickel fundamentals as detailed above, there may not need to be a scientific explanation for its recent performance.

And as a speculator witnessing nickel’s awe-inspiring price action, the opportunities that arise from this have me chomping at the bit. This nickel and in general base metals bull market has made futures traders betting in the right direction barrels of money. But what is still not widely known is that the average investor can take part in this powerful bull by acquiring the stocks of the explorers and producers that are charged with bringing these popular base metals to market.

Most producing nickel mines today were brought into production with their nickel metal being economically feasible at market prices of under $3.00 per pound. If five years ago you’d have told any seasoned nickel professional that $8.00 per pound nickel is perhaps a cheap and acceptable norm with prices even shooting past the $10.00 level, they’d have strung you up for being stricken with irrational exuberance. For this reason, nickel miners that are leveraged to its market price are able to score incredible profits as their cash costs remain low.

Even if nickel corrects down to its levels before this recent surge, those miners that are currently producing or developing the nickel mines of the future are likely to greatly capitalize from a secular bull market in their underlying metal. And with metals prices currently hovering around record highs, current producer companies are continuing to yield record profits for their shareholders.

In the same fashion that gold and silver stocks caught their bid as the precious metals took off, base metals stocks have incredible potential going forward. But unlike gold and silver stocks, most base metals stocks still exhibit obscenely low valuations and are ripe for the picking. Even Mr. Goodyear echoes the fundamental sentiment of this base metals bull claiming that resource companies are currently trading at bear-market multiples.

Even though many base metals stocks have enjoyed good initial run ups in this young bull market, they still lie in relatively undiscovered territory for most investors and speculators. As the word gets out that base metals stocks are still cheap, capital should flood into them eventually driving their values to appropriate bull market levels greatly rewarding those prudent ones that were in the door first. With this in mind, we’ve been researching base metals stocks all summer wading through the hundreds that are out there on a quest to discover the best fundamental plays.

We have just published another of our comprehensive research reports that identifies our favorite 20 base metals stocks. These reports contain detailed fundamental discussions on the individual stocks we believe have a high potential for success in various sectors within the commodities bull market. Included in this base metals stocks report are not only a handful of very promising and undervalued nickel plays, but those companies that focus on copper, zinc, lead and molybdenum among the many base metals.

The stocks highlighted in this report range from small-cap junior explorers to major producers. This inside look at our research provides a sample of what we deem the best of the best base metals stocks ultimately designed to support future base metals stock trades for our newsletter subscribers.

The technical buy and sell decisions are timed and discussed within our newsletters based on current market conditions among many factors. But the ongoing stock research for each sector is too detailed and extensive to cover within our newsletters, which is why we publish our research reports. If you are interested in getting an inside look into our favorite base metals stocks, please purchase our latest report today.

The bottom line is nickel is indeed one of today’s hottest commodities. As this metal’s global imbalance works to correct itself, prices should continue to stay high for many more years. With this, the suppliers that are bringing nickel to market now and in the future are positioned to achieve vast profits.

And investors and speculators wishing to take part in this excellent bull market not only in nickel but in any of the base metals can multiply their capital through the elite companies that discover and extract the various metals from the earth. Base metals stocks are still cheap, and a continued bull market in these metals should drive them considerably higher.

 

[johnmwu3]

Nice Article !
I know China will have another stainless steel line to be built in Guandong province( South China), about 1.5 million tons per year.
China now to limit common carbon steel production, but lift stainless steel production.
To say the truth, China got no enough stainless products to be used, especially in high grade quality, and high quality stainless steel will use more Nickle in it, most people think the base metal boom will last to 2010.
Any suggestion ?

 

[CanOz]

Infrastructure development in China will certainly drive metals pricing...Zinc is the one that i feel (like many others) will outperform others. Nickel too i feel will continue to be in strong demand.

Iron ore demand will decrease as China becomes a net exporter.

 

[chicken]

Infrastructure development in China will certainly drive metals pricing...Zinc is the one that i feel (like many others) will outperform others. Nickel too i feel will continue to be in strong demand.

Iron ore demand will decrease as China becomes a net exporter.

I got into AGM....make your research.......bought 200k at 30cents....going into production at end of year....SP will be rerated....brokers have 60cents as value....comments

 

[savtin]

Chicken,
I have been with AGM for several years, waiting for the market to wake up to its value......it is still very cheap at these prices and you are very lucky to be able to buy in at that price.....1 year from now the SP will be in the dollar range.............that is if it is not taken over...........a VERY REAL POSSIBILITY......great assets. Their reserves thus far are tip of the ice berg stuff.

cheers
savtin

 

[chicken]

Chicken,
I have been with AGM for several years, waiting for the market to wake up to its value......it is still very cheap at these prices and you are very lucky to be able to buy in at that price.....1 year from now the SP will be in the dollar range.............that is if it is not taken over...........a VERY REAL POSSIBILITY......great assets. Their reserves thus far are tip of the ice berg stuff.

cheers
savtin

You are right most undervalued SP ...As soon as production starts look out this SP will be in the $1 range...not long now ...read what was said as production will commence earlier in the 2007 year....good find....got a swag of them

 

[rederob]

You are right most undervalued SP ...As soon as production starts look out this SP will be in the $1 range...not long now ...read what was said as production will commence earlier in the 2007 year....good find....got a swag of them

Now now chicken
Allegiance hope to find someone to process ore prior to 3rd quarter 2007.
If they do, that would be excellent, although is still about 6 months away.
I agree the company has significant value, and should reward long term holders handsomely over time.
However, like many companies that are yet to achieve cash flow, there is likely to be an opportunity to pick up AGS quite cheaply again once the inevitable nickel price correction occurs.
I wish you and the other faithful holders many happy returns.

 

[michael_selway]

However, like many companies that are yet to achieve cash flow, there is likely to be an opportunity to pick up AGS quite cheaply again once the inevitable nickel price correction occurs.

Alot of "ins" again for Copper & Nickel

http://yahoo.reuters.com/news/artic...9-04_16-46-07_L04194943&type=comktNews&rpc=44

thx

MS

 

[michael_selway]

Alot of "ins" again for Copper & Nickel

http://yahoo.reuters.com/news/artic...9-04_16-46-07_L04194943&type=comktNews&rpc=44

thx

MS

Rederob what do u think of this? Strong Speculation = fake buying?

Nickel shortage? Not according to France’s Eramet Metals Insider - 8 September 2006

Not everyone is convinced that the recent liquidity squeeze on the London Metal Exchange””a direct function of historically low stock levels””was a reflection of the global market’s supply-demand dynamics. French producer Eramet warned in its H1 results released yesterday that “the physical market should be close to equilibrium in 2006, which could mean a return by nickel prices to lower levels at any time.” It attributes the recent surge in prices over July and August to “strong speculation”. This is in fact a repeat of what the company has already said several times in the last couple of months and it’s worth emphasising that Eramet’s is something of a minority view among nickel market analysts and producers. Canadian producer Inco has said it expects the market to record a deficit of 30,000t this year, while the World Bureau of Metal Statistics has estimated it recorded a 38,000t deficit in the first six months alone, although this is right at the top end of assessments to the best of our knowledge.

Also alot of "ins" again

thx

MS

 

[moses]

Now now chicken
Allegiance hope to find someone to process ore prior to 3rd quarter 2007.
If they do, that would be excellent, although is still about 6 months away.
I agree the company has significant value, and should reward long term holders handsomely over time.
However, like many companies that are yet to achieve cash flow, there is likely to be an opportunity to pick up AGS quite cheaply again once the inevitable nickel price correction occurs.
I wish you and the other faithful holders many happy returns.

AGM or AGS?

Allegience Mining and Alliance Resources; I think Chicken was talking about AGM.

 

[rederob]

Rederob what do u think of this? Strong Speculation = fake buying?
MS

MS
Speculation is not "fake buying".
Speculative buying on the LME is taking a risk, by entering a long or short position, without the intention of taking delivery.
Most markets have speculators very active in them, and most speculation nowadays seems to be the domain of hedge funds.
Those that buy on the LME will either quit their position, take delivery, or default.
I have snipped an article on default from a Bloomberg article last year:

"Investors use so-called credit-default swaps to insure debt payments or bet on credit quality. Demand surged this week for swaps protecting payments by General Motors Corp. 'Risk concentration remains high,' said Ian Linnell at Fitch in London. 'In the event that there was a major default, for instance General Motors, and then one of the major dealers also defaulted, the market would be in major trouble.'"

"Credit-default swaps are the fastest growing part of the $270 trillion derivatives market, based on the so-called notional value of the debts that underlie the contracts, according to the Bank for International Settlements. The default swaps market worldwide jumped 60 percent to $10.2 trillion in the first half of 2005, the BIS said in a report yesterday."

"In a credit-default swap, the buyer pays an annual premium to guard against a borrower's failing to pay its debts. In the event of default, the buyer gets paid the full amount insured, and hands over defaulted loans or bonds to the swap seller. Swap prices typically decline when creditworthiness improves, and rise when it worsens."

In relation to nickel's "ins", it is a pleasing sign.
I am never keen about overheated markets as they favour active traders over more passive investors.
It will be interesting to see in the pace of "ins" is maintained next week.
My suspicion is that Norilsk has milked the present high backwardation dry and will run to a more orderly delivery regime over coming weeks.
An interesting feature of LME's cancelled nickel warrants equation is the lack of drawdown. It suggests to me that consumers panicked recently and shored up their supplies in advance of production restarts. If that was indeed the case, then a bout of heavy nickel buying is not too far off. Consumers just can't afford to hold high inventories when prices are running at double their budgeted levels.
On the price side of nickel, note that there has been a rather orderly decline from recent highs, rather than a massive selldown as fear gripped an overbought market. This seems to be a function of market tightness.
My view is that the market is as likely to reclaim highs as it is to continue to the downside. Probability-wise the downside price trend is highly likely to continue in the immediate term.
Nickel has not really had a chance to consolidate in its recent record breaking run, so I hope for the sake of price stability we can find a range nearby where it can sit comfortably for a few weeks.

 

[rederob]

AGM or AGS?

Allegience Mining and Alliance Resources; I think Chicken was talking about AGM.

Moses
Apologies.
Although my comments were based on Allegiance, I do believe I pulled down a chart of Alliance (uranium/gold/copper) when making the comment about entry price.

 

[chicken]

I got into AGM....make your research.......bought 200k at 30cents....going into production at end of year....SP will be rerated....brokers have 60cents as value....comments

You are right I am talking about AGM.....starting NOV2006 production in 4 weeks..they are using or working with someone for till their own plant is installed as fas as AGS...that is a Uranium play..have bought and sold a few times....AGM..thats where I hold over 200k shares...looking better everyday...capper still buying....see 32cents at present....but when we see production starting...PRICE per share?......I bought ....LOLO

 

[mlennox]

Bloomberg reports nickel hits new record high in early trading today. Forbes reports $13.73/lb for 3 month ($30,250/tonne) was hit earlier today. The $30,000/tonne barrier had been breeched for the first time in history on Aug 24th of this year.

 

[chicken]

Bloomberg reports nickel hits new record high in early trading today. Forbes reports $13.73/lb for 3 month ($30,250/tonne) was hit earlier today. The $30,000/tonne barrier had been breeched for the first time in history on Aug 24th of this year.

Check out AGM...their latest news....production to start..mine ready in Tasmania..all ready to roll..see their presentation today in Sydney...Mining conference...at 33cents...what more can I say..bought more today...

 

[Seneca60BC]

The nine-month world nickel price average is $9.69 this year, the
highest ever recorded for the alloying and plating metal. If the
Barclays Capital forecast of $14.29 for the fourth quarter is accurate,
the full-year average would be $10.84. But that outlook is somewhat on
the high side. Several other analysts are looking at a full-year 2006
average in a range of $9.50-$10. In either case, the price outlook
reflects the global surge in demand caused by robust stainless and
specialty steelmaking and a supply tightness caused by several strikes.
Looking ahead, there's no consensus yet on 2007 pricing. Morgan Stanley
analyst Wiktor Bielski is forecasting the London Metal Exchange average
spot price will increase to $10.75/lb. However, Australian Bureau of
Agricultural and Resource Economics, that nation's official forecaster,
is projecting $8.57/lb. Earlier, Sydney-based Westpac Banking projected
a 2007 average of just $6.50
<http://www.purchasing.com/article/CA6368995.html?display=readersChoice>
while J.P. Morgan's commodities desk is forecasting $6.70.

link

 

[rederob]

Seneca
ABARE is a wonderful organisation, with talented forecasters.
You should read their past 4 year's worth of metals forecasts.
If they were on performance bonuses, they wouldn't have a nickel to their name.