Markets | Nickel
The nickel market in 2007 was subject to unprecedented volatility. A combination of new nickel demand fuelled by massive Chinese stainless steel capacity growth and speculative buying by funds were the primary catalysts for record nickel prices in the first half of 2007. Nickel prices started the year at $15.21 per pound ($33,540 per tonne) and peaked at a record high of $25.51 per pound ($54,050 per tonne) in May.
The introduction of LME lending guidance for nickel in early June prompted a sharp drop in the price, followed by destocking by stainless steel producers during the remainder of the year. Nonetheless, the average LME cash nickel settlement price rose to $16.82 per pound ($37,089 per tonne) over the year, a 54% increase over 2006.
The record nickel price environment encouraged the use of low grade nickel pig iron in steel production and stainless steel producers increased production of the 400 series ferritic (nickel free) and 200 series (lower nickel-containing) stainless steel at the expense of the 300 austenitic series (higher nickel-containing) series.
The strong start to the year was followed by stainless steel production cuts in the second half which resulted in stainless steel production remaining at similar levels to 2006.
Nickel demand from the non-stainless steel sectors, such as foundry and nickel alloys, continues to be strong, especially from the aerospace, oil and gas, and power generation industries, as well as the battery sectors.
The degree of nickel supply disruptions experienced over the last few years has eased. In addition, the rapid rise of China’s domestic low-nickel pig iron output sourced from ore from the Philippines, Indonesia and New Caledonia has been reported to have reached approximately 85,000 tonnes. Higher grade ore from Indonesia and New Caledonia is more suitable for producing a low grade nickel stainless steel feed containing 8% to 14% nickel. However, this new high cost source of nickel is only economic at high nickel prices.
Extensive destocking led to rising levels of LME stocks to just under 50,000 tonnes at the year end.
Outlook
The mid-term price outlook remains favourable, with prices expected to remain well above long-term averages due to robust emerging market demand and modest supply growth. For 2008, market prospects continue to be positive as the stainless steel market is expected to rebound. Early indications point to stronger first-quarter stainless steel production in Europe and the US, while China, Japan and Korea have yet to respond. This is due to the level of inventory destocking, which was exaggerated in the second half of 2007.
It is expected that the price of nickel will remain in a tighter trading range accompanied by less volatility, due to the change in the nickel alloy surcharge system from three to one month pricing. The high marginal cost of low grade nickel pig iron production is also likely to restrict nickel prices to a tighter range, effectively acting as a swing producer when the price covers the cost of production of nickel pig iron.
Yngvar Finne seals anodes at the Nikkelverk refinery, Norway