Sudden drop in nickel inventories

The price of nickel has dropped to US$2.54 per lb. (compared with US$2.61 at the end May) following a sudden decrease in London Metal Exchange (LME) inventories to 90,492 tonnes (95,274 at the end of May).

There seems to be no clear reason for the 5,000-tonne drop from recent highs of 96,000 tonnes, the first decline in many months. Rumors abound of buying by producers, traders, funds, speculators and even consumers. In the consumption area, major markets are mixed but generally looking up from recent lows.

Spurred by consumers demanding high-quality fabrication alloys, stainless production continues to grow at the expense of cheaper (but shorter-lived) plain steel alternatives.

European stainless mills, which usually slow their purchases in anticipation of summer vacations, may be short of stainless scrap because of much slower shipments of official and unofficial Russian nickel on which they have come to rely.

Destocking during the Japanese recession appears to be over and stainless production volumes are expected to continue rising.

The U.S. economic recovery seems under way as flat-rolled stainless mills there are operating near capacity. Stainless scrap is reportedly tight for both domestic and export needs. This development should bode well for sales of nickel units.

In China, the 25-30% currency devaluation has at least temporarily slowed the tremendous economic growth which has been a boon to Asian markets for the past few years. While slowing the demand for imported raw materials, exports of domestic raw and manufactured products will experience a significant improvement in profitability. Most countries around China, where there is civil peace, are busy and growing ever more prosperous.

Western nickel-producers, losing money and trimming costs, are waiting out the effects of the recession. High-cost mines are slowly shutting down while the larger ones are operating at their most economical levels. The net result should see a drop of at least 10,000 to 20,000 tonnes in Western production this year.

Moreover, if 1993 Western production totals 550,000 tonnes, Russian exports total 120,000 tonnes, and if demand is similar to that of 1992 at 650,000 tonnes, a small 20,000-tonne surplus would remain. The uncertainty is Russian exports and this is due to lack of timely information.

The recent slowing of nickel and nickel “scrap” shipments into Europe from Russia are the subject of intense speculation. Russian shipments are normally slower during spring when northern ocean shipments are disrupted by ice breakup.

Russian inventories are rumored to be rising. Stating an official need to keep production and sales numbers secret, Norilsk releases such data months too late for evaluation by investors, competitors or financiers. Rumored taxation revenue-sharing strife between Norilsk and Moscow is disrupting the issuance of export permits and shipments. Domestic selling prices in rubles are equivalent to US$1.50 per lb., up from US85 cents last year. The smuggling, into the West, of domestically allocated nickel units as scrap is understandable and rampant.

Official exports are priced under the LME to ensure movement of material to traders and stainless steel companies, mainly in Europe.

Signalling a desire further to expand control of its world marketing, Norilsk recently bought a controlling interest in its major distributor, Normaco, based in London, from Axel Johnson.

Russian nickel production and consumption have fallen sharply as selling prices are inadequate to finance needed capital investment. Falling consumption and production may allow exports to remain at levels about equal to 120,000 tonnes.

Cobalt markets are weaker. Spot June prices (with end-of-May values in parentheses) are easing, with Western brands at US$12.50 (US$14.50) per lb., Russian US$10 (US$13), and producers officially at US$18 (US$18) but discounting as required.

Copper prices to date in June eased their sharp decline, recovering to US83.8 cents (US81.4 cents) per lb. as LME and Commodity Exchange of New York (Comex) inventories continued their rise, reaching 545,583 (519,278) tonnes. Molybdenum oxide is holding on low volumes; prices are reported firm at US$2.25 (US$2.15) per lb. Lead markets are quiet; cash LME prices eased slightly at US18 cents (US18.5 cents) per lb. as stocks rose again to 258,975 (254,050) tonnes. Zinc markets were also softer again, with cash prices off to US42.1 cents (US44.5 cents) per lb. as stocks jumped again to 677,675 (660,175) tonnes.

Central bank selling, developments in Russia and South Africa and currency uneasiness kept gold prices ahead at US$371 (US$341.95) per oz. Platinum continued its steady pace, supported by firming auto sales, with prices at US$385.08 (US$385.26) per oz.

Palladium, also ahead on auto news, reached US$125.20 (US$119.60) per oz. and rhodium steadied at US$935 (US$1,320) per oz.

Silver, like gold, appears to be consolidating recent gains at US$4.35 (US$4.46) per oz.

— Jack Dupuis is a minerals marketing consultant in Thornhill, Ont.