Monthly Updates

Intertech Monthly Updates

Demand to return to the nickel market in 2010: The fallout from the financial crisis that afflicted the world economy has seen nickel prices fluctuate wildly.  LME prices peaked at just over US$52,000/t in May 2007, on the back of strong demand and low stocks, but had fallen by over 80% by the end of 2008, as demand collapsed.  By the fourth quarter of 2009, however, prices had recovered to US$18,500/t.

The fall in nickel prices has been largely due to a collapse in demand.  Data for the first nine-months for 2009 shows nickel consumption at the world level has declined by 9% year-on-year, as end-users aggressively cut inventories.  Output of nickel has also declined sharply.  For the first three quarters of 2009, nickel mine production fell by 18% year-on-year, while primary production was down by 6%.  Producers responded quickly to the fall in demand, with around a quarter of all production suspended during the first half of 2009.

While both demand and production of nickel declined in 2009, stocks at the LME built up steadily.  At the end of December 2009, official stocks at LME warehouses totalled in excess of 150,000t.  To put this into perspective, when nickel prices surged to above US$50,000/t, LME stocks totalled 4,700t.

Nickel demand driven by China

The nickel market overall has seen strong growth in demand.  For the period 2000 to 2006, when demand peaked, consumption at the world level increased at an annual average rate of 3.8%.  Although consumption increased across the world, China exhibited the largest growth.  Between 2000 and 2009, its domestic demand is estimated to have risen by an annual average rate of almost 25%.  This phenomenal growth has seen China become the world’s largest consumer of nickel.  In 1995 China accounted for a modest 4% of world consumption, increasing to almost 30% in 2008.

Demand for nickel is predominantly driven by stainless steel production, which accounts for around two-thirds of total nickel consumption.  Production of crude stainless steel began falling as early as the third quarter of 2007.  In 2008, output fell by 7% year-on-year, while the first three quarters of 2009 have seen production of crude stainless steel decline by around 15%, year-on-year.

The fall in production of stainless steel, however, has only taken place in developed economies.  Emerging markets such as China and India have seen domestic output rise.  The first three quarters of 2009, saw Chinese production rise by almost 20% year-on-year, while for the year, China is forecast to produce 8-9Mt.

At the world level, crude stainless steel production in 2009 is forecast to decline to around 25Mt.  However, 2010 is expected to see an increase in demand and production, as world GDP recovers.  Production of crude stainless steel is forecast to rise by around 8% in 2010.

Nickel prices to remain stable throughout 2010

Although global demand for nickel has fallen for three consecutive years, a recovery in the global economy should follow through to see consumption of increase in 2010.  Roskill forecasts nickel consumption will increase by around 7% in 2010.

The rise in demand for nickel in the coming years is primarily due to an increase in demand for stainless steel.  Stainless steel production, the largest end-use for nickel, is forecast to reach 27Mt in 2010 (an 8% increase year-on-year), and almost 30Mt in 2011.

As demand for nickel increases across the globe, production is likely to follow suit.  A market surplus of around 75,000t is forecast for 2010, as output of primary nickel increases to 1.4Mt.

Given the market surplus forecast to develop between 2010 and 2012, nickel prices are expected to be stable.  The annual average price in 2010 is forecast to around US$20,000/t, and expected to rise in both 2011 and 2012.  The average price between 2010 and 2012 is forecast at just over US$22,000/t.