Nickel - the metal for 2007?

[Halba]

laterite very hard to mine...its sulphides the one the mkt is after

 

[michael_selway]

hi, what are the thoughts on GME in this thread? Picked up a fair parcel on friday and wondering whether I've paid too much for its potential?

hm bought it after the spike!?

thx

MS

 

[michael_selway]

http://metalsplace.com/metalsnews/?a=8827

Goldman Sachs Group Inc., the most profitable investment bank in Wall Street history, increased its 2007 forecasts for nickel, zinc and platinum prices, saying supplies are "tighter." The bank also rated Xstrata Plc a "best buy idea."

Prices of nickel, used in stainless steel, will average $25,000 a metric ton next year, Goldman Sachs analysts led by Peter Mallin-Jones in London wrote in a report dated yesterday. That's a 33 percent increase from the previous estimate.

"Stainless-steel related demand for nickel has likely played a significant role in depleting nickel inventories this year," the analysts said. Supplies will lag behind demand by 20,000 tons this year, and the deficit will persist to next year, they said.

A strike at Eramet SA's Doniambo unit in New Caledonia, the world's largest ferronickel plant, has contributed to declining supplies as deliveries have dropped 8.5 percent since the strike started on Sept. 25, New York-based Goldman Sachs said.

Prices will average $17,750 a ton in 2008, before dropping to $15,000 tons in 2009, the bank said.

Shares of Xstrata, which acquired Canadian nickel producer Falconbridge Ltd. in September, are "underpriced," Goldman Sachs said. The Falconbridge acquisition has transformed Zug, Switzerland-based Xstrata into a global diversified miner and offers "the most potential upside" among the stocks the analysts covered, the bank said.

The analysts raised their share-price target for Xstrata 40 percent to 3,165 pence. Xstrata shares have gained 93 percent in the past year and were at 2,341 pence as of 10:12 a.m. in London.

The $17 billion purchase of Falconbridge, the world's fourth-largest nickel producer by 2005 output, also helped Xstrata to be the world's fourth-largest copper producer.

Zinc, Platinum

Goldman Sachs increased its zinc-price forecast 49 percent, saying the metal will average $4,298 a ton, peaking in the first quarter when prices are expected to average $4,520 a ton.

"Demand for galvanized steel looks strong currently, driving strong demand for zinc metal," the analysts said. Zinc is mostly used to galvanize steel. Prices will average $3,323 a ton in 2008 and $1,900 a ton in the following year.

The bank kept its 2007 forecasts for copper and aluminium unchanged at $5,875 a ton and $2,425 a ton, respectively. Aluminium will be in a surplus of 125,000 tons next year on rising production of alumina, the raw material used to produce the metal. Copper's oversupply is projected to be 230,000 tons next year, the analyst said.

The platinum market is also tighter than what the analysts previously expected, they said. Prices will average $1,225 an ounce next year, 11 percent higher than the previous estimate. Prices will average $1,085 an ounce in 2008 and $1,000 in 2009.

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=3B9D7B18-17A4-1130-F56C300832A10AD6

thx

MS

 

[chops_a_must]

They are interesting articles and many thanks MS.

I just have a few questions. Even though they have revised forecasts for nickel and zinc upwards, wouldn't the prices for the metals actually have to come down to meet the averages they expect?

 

[brerwallabi]

Have you ever known any analysts to get it right.
They are so conservative, never known one to stick his neck out.
The majority is always happy with some small amount of growth above bank rates.

 

[rederob]

I just have a few questions. Even though they have revised forecasts for nickel and zinc upwards, wouldn't the prices for the metals actually have to come down to meet the averages they expect?

What a novel idea.
I wonder if they factored that scenario in!

 

[chops_a_must]

What a novel idea.
I wonder if they factored that scenario in!

I know you are taking the piss out of me. That's cool.

But their logic seems wrong. They are revising forecasts upwards based on fundamentals, yet, the current prices would have to drop based on the same fundamentals they are using to demonstrate a raise in forecasts.

 

[patbarry]

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?

The LME daily supply quote is misleading to the investor market - and it pays to understand what the market is doing.

Major suppliers like BHP/Western Mining will contract with major consumers (governments and major consortiums) - but there is a huge market that is served by broker/dealers selling to smaller manufacturers. Typically, the dealer will discuss an annual contract quantity with a rise and fall clause whereby the customer can elect to take more or less than the contracted amount. The dealer has to make a decision, since he wants to sell and not hold physical shipments, so he will commit to purchase his guaranteed commitments and plan to fill the overage in the spot market if the customer wants delivery of the full contracted amount.

Explained simply, if a dealer agrees with you to provide 1000 lbs of nickel a month, the contract will typically have a clause where the customer can adjust his acceptance by maybe 10% - meaning that he take only 900 lbs a month. So the dealer contracts with a mine to supply 900 lbs, not the 1000 lbs that the contract calls for.

Now the market is alive, and customers are saying that they want the full amount, and the dealer goes into the spot market to buy and satisfy the customer's requirement - but the spot market has moved way above the long term contract amount, so the dealer is in trouble and he has to pay the high price and take a loss to prevent default on the contract.

The result is an aberration - the spot market swells beyond comprehension, and yet the contracts are written at a long term price that is lower. However the investor market looks at the LME quote and thinks, Wow! The nickel market is $35,000 a tonne. Wrong! The marginal spot market, which is under pressure, is $35,000 a tonne yet the contracts that are renewing right now may not be written at this level.

I can say that I am looking at long term prices averaging US$12,000 a tonne, if this is helpful for any readers of this post. This is conservative and is below the long term present contract rate, but it won't take much of a decline to bring the spot market into equilibrium and bring the prices back down to some level.

 

[rederob]

patbarry
That's a great explanation of a segment of market pricing, which no doubt has an influence on prices across the board.
However, some nickel producers have offtake agreements that are benchmarked to spot prices, and others have a proportion of production hedged.
I guess the difficulty is working out when nickel prices - ie spot prices - will come off the boil. And then working out which companies are going to be most affected by a falling spot price.
My suspicion is that while the market remains tight, any longer term contracts that are up for renegotiation are going to lock in either higher prices, and/or improved price setting mechanisms.
Certainly, BHP have latched on to their ability to use their market power to completely revise copper pricing arrangements so that price participation is no longer a factor, while treatment and refining cost/charges better reflect economic production benchmarks rather than supply/demand per se.
What is certain is that forward future price curves for nickel are moving upwards and suggest that (at $24,000 for 27 month delivery) a figure of $12k/tonne would only be reached in the long term when commodity prices completely collapse.

 

[michael_selway]

The LME daily supply quote is misleading to the investor market - and it pays to understand what the market is doing.

Major suppliers like BHP/Western Mining will contract with major consumers (governments and major consortiums) - but there is a huge market that is served by broker/dealers selling to smaller manufacturers. Typically, the dealer will discuss an annual contract quantity with a rise and fall clause whereby the customer can elect to take more or less than the contracted amount. The dealer has to make a decision, since he wants to sell and not hold physical shipments, so he will commit to purchase his guaranteed commitments and plan to fill the overage in the spot market if the customer wants delivery of the full contracted amount.

Explained simply, if a dealer agrees with you to provide 1000 lbs of nickel a month, the contract will typically have a clause where the customer can adjust his acceptance by maybe 10% - meaning that he take only 900 lbs a month. So the dealer contracts with a mine to supply 900 lbs, not the 1000 lbs that the contract calls for.

Now the market is alive, and customers are saying that they want the full amount, and the dealer goes into the spot market to buy and satisfy the customer's requirement - but the spot market has moved way above the long term contract amount, so the dealer is in trouble and he has to pay the high price and take a loss to prevent default on the contract.

The result is an aberration - the spot market swells beyond comprehension, and yet the contracts are written at a long term price that is lower. However the investor market looks at the LME quote and thinks, Wow! The nickel market is $35,000 a tonne. Wrong! The marginal spot market, which is under pressure, is $35,000 a tonne yet the contracts that are renewing right now may not be written at this level.

I can say that I am looking at long term prices averaging US$12,000 a tonne, if this is helpful for any readers of this post. This is conservative and is below the long term present contract rate, but it won't take much of a decline to bring the spot market into equilibrium and bring the prices back down to some level.

Thanks Patbarry,

whats your veiw on Zinc?

thx

MS

 

[Kauri]

Jan. 22 (Bloomberg) -- Nickel, the only gainer this year on the London Metal Exchange, pared an advance that sent prices to a record after owner of the metal on board a ship grounded off the southwest coast of England said the vessel carried less than 20 percent of the expected amount.

The MSC Napoli, which is being towed to Devon, England, carried 160 metric tons of nickel, Keith Dunleavy, managing director of London-based Stratton Metal Resources Ltd., said today in a phone interview. Stratton owns the metal on board. Reuters reported on Jan. 19 that the ship contained at least 1,000 tons.

``People were trying to boost prices,'' Dunleavy said today in a phone interview. Stratton learned the exact amount of the metal on board the container ship today, he said.

Nickel for delivery in three months gained $300, or 0.8 percent, to $36,500 a ton as of 12:46 p.m. in London. Earlier, the contract climbed to $37,300 a ton, beating Jan. 19's high by $1,000.

Nickel rose as much as 2.5 percent Jan. 19 on speculation 1,000 tons of metal wouldn't be saved, reducing supplies when inventories monitored by the LME are less than two days of global consumption.

Honest Sir, we didn't know we only had $6,000,000 of nickel on board, we thought it was $36,000,000 worth.

 

[Dukey]

These cheap card tricks that influence the market are a bit scary huh.
And of course there's no way to prove it wasn't a 'typo' or other innocent accident - so no-one will get bit by authorities.
The scary bit methinks is the possible scenario that one of these market manipulations could someday be 'the last straw' triggering a mahor sell-off etc. Is that possible? Or am I being overly paranoid.

 

[rederob]

Nickel is up $10,000 since early January (2 weeks!!!) and still rising.
There will be a correction, and it will be savage.
Then there will be a retrace, and it will probably take out $40,000 again - possibly before the end of the quarter.
Support over $30k seems to be a given near term.
Rebuild on nickel inventories by consumers appears impossible in 2007 and may not even be achievable in 2008 if Goro and Ravensthorpe blow out.

 

[chops_a_must]

Nickel is up $10,000 since early January (2 weeks!!!) and still rising.
There will be a correction, and it will be savage.
Then there will be a retrace, and it will probably take out $40,000 again - possibly before the end of the quarter.
Support over $30k seems to be a given near term.
Rebuild on nickel inventories by consumers appears impossible in 2007 and may not even be achievable in 2008 if Goro and Ravensthorpe blow out.

As opposed to panic selling, there seems to have been panic buying. All based on a potential strike. Sure, the fundamentals probably support this price this year, but the speed of the price rise is worrying. All it's going to take is one bit of bad news and the price will come down very fast. The US housing data could just provide the sentiment to turn this price around.

 

[BREND]

As opposed to panic selling, there seems to have been panic buying. All based on a potential strike. Sure, the fundamentals probably support this price this year, but the speed of the price rise is worrying. All it's going to take is one bit of bad news and the price will come down very fast. The US housing data could just provide the sentiment to turn this price around.

Not only that, currently 1 US hedge fund holds more than 90% of nickel inventory at LME warehouse now.

 

[chops_a_must]

Not only that, currently 1 US hedge fund holds more than 90% of nickel inventory at LME warehouse now.

Ha! Serious? Have they started selling yet... or are they hoping to drive prices even higher? 'Cos when they do start selling, parachutes people. :run:

 

[BREND]

Ha! Serious? Have they started selling yet... or are they hoping to drive prices even higher? 'Cos when they do start selling, parachutes people. :run:

Yes serious, it is common for funds to dominate the metal market. Currently funds hold substantial amount of other metals inventory as well. I believe they are all prepared to create a massive metal rally when copper price rebounds.

 

[joeljp]

Not only that, currently 1 US hedge fund holds more than 90% of nickel inventory at LME warehouse now.

Hi Brend, how do you know this? Just curious.

 

[rederob]

Hi Brend, how do you know this? Just curious.

http://www.bloomberg.com/apps/news?pid=20601012&sid=anJA46fY7oMU&refer=commodities

 

[BREND]

Hi Brend, how do you know this? Just curious.

How I know? I'm a metal futures dealer, I have access to a bit more information than retail investors.