Bloomberg News

Nickel Surplus to Narrow on China’s Demand, Sumitomo Says

July 29, 2011

(Updates copper price in 11th paragraph.)

July 29 (Bloomberg) -- A global nickel surplus may narrow on increasing stainless-steel demand from China and as new mining projects have stalled, limiting a decline in prices, said Sumitomo Metal Mining Co., Japan’s top producer.

Supply will likely exceed demand by 20,000 metric tons this year from an earlier estimate of 35,000 tons projected in April after the March 11 earthquake and tsunami in Japan, said Toru Higo, general manager of nickel sales and raw materials. Last year demand outstripped supply by 63,000 tons, the first deficit since 2006, he said.

Prices have fallen 0.6 percent this year, making nickel the worst performing base metal on the London Metal Exchange. Nickel is used for corrosion resistance in stainless steel. Global stockpiles may climb this year as output gains to 1.6 million tons while usage is forecast to rise to 1.54 million tons, the International Nickel Study Group said on April 12.

“The narrowing surplus is because of increasing demand by China to make stainless steel,” Higo said in an interview yesterday. Output from China, the biggest user and consumer of stainless steel, won’t be badly affected by the nation’s tightening monetary policy to curb inflation, he said.

World stainless-steel output may increase to 33.3 million tons in 2011, up from the company’s April forecast of 32.3 million tons, Higo said. China’s output is expected to rise by 500,000 tons to 12.8 million tons, he said.

Ambatovy, Onca Puma

A delay at Sherritt International Corp.’s Ambatovy mine project in Madagascar, slowing output at Vale SA’s Goro mine in New Caledonia and Onca Puma mine in Brazil as well as trouble at its Copper Cliff furnace earlier this year in Canada will narrow the expected surplus, he said.

Sherritt, which owns 40 percent of Ambatovy, said on June 14 production would begin in the first quarter of 2012. Korea Resource Corp., which holds 17.5 percent, said March 31 production would start in the second half of this year.

“The physical nickel market has been weakening, mirrored by steady declines of physical premiums in recent months,” said Michael Widmer, head of metals research at Bank of America Merrill Lynch in London. He was the most accurate forecaster for the metal for the eight consecutive quarters ended March 31, according to Bloomberg data.

Stockpiles Lower

“At the same time, nickel stocks continued to trend lower, which may have been influenced in part by the underperformance of nickel production, i.e. producers resorting to LME stocks and deliver these to costumers,” Widmer said.

Nickel will average $24,064 a ton in 2011 and $20,375 in 2012, Widmer said in a weekly note on July 15.

Three-month delivery metal gained 0.2 percent to $24,600 a ton on the LME at 3:18 p.m. in Tokyo. LME nickel stockpiles totaled 102,930 tons as of yesterday after touching 101,418 tons on July 22, the lowest level since March 2009.

World nickel output is expected to increase 12 percent to 1.59 million tons this year, while consumption may rise 5.7 percent to 1.57 million tons, Sumitomo’s Higo said. China’s output may grow to 365,000 tons in 2011, including nickel pig iron, from 335,000 tons in 2010, while the country’s demand will likely rise to 630,000 tons from 575,000 tons, he said.

In Japan, Asia’s second-largest consumer, nickel demand may decline 1.9 percent to 146,700 tons this year, while output will likely drop 6 percent to 151,700 tons, Higo said. The nation’s exports are expected to slump 11.6 percent to 67,700 tons following the quake, he said.

--Editors: Jarrett Banks, Ovais Subhani

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net.

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net


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