Nickel-price rally runs out of steam

The rally in nickel prices experienced since the start of this year appears to have run out of steam and prospects for further price hikes in the short term appear limited, Shearson Lehman Brothers reports in its latest quarterly analysis.

“We do not believe that demand will improve from current levels. Therefore, if prices are to increase, supplies of nickel must be cut back,” states the report, adding that current market tightness should ease with the arrival of S oviet material.

At the beginning of 1986, cash prices of nickel were $1.86(US) per pound and at the end of that year, $1.60. That weakness carried over into January of this year, with the average price of $1.60 in January being lower than for any month during 1986. On Jan 8, a four-year low was reached when cash prices dipped briefly to $1.55.

Since then cash prices have rallied to a high of $1.77, and at the time of the report were established at more than $1.70. “The upward price move was prompted by the low level of exchange stocks, which in turn was the result of a drop in Soviet shipments to the European market,” states the report.

“However, the improvement in nickel prices, against a background of firm demand and low stocks, must in retrospect be considered disappointing. This is because prices are still at a level where few producers are covering their operating costs, let alone making a profit.”

Over the longer term, Shearson expects reductions in output should help prices move upward. Shearson foresees the market in balance during 1987, with consumption of nickel improving slightly.

A “best estimate” for cash prices this year on the London Metal Exchange is $1.72 (assuming an average exchange rate of $1.55). Prices averaged $1.64 for January and February.

“The most likely pattern for prices for the remainder of 1987 is for a slightly weakening back towards $1.65 over the next few months, before reductions in output begin to have some effect,” states the report, while forecasting prices at the end of the year of more than $1.80.

The Bureau of Mines, U.S. department of the interior, reports consumption in the United States in January of this year was up 8% compared with the same month in 1986, and up 32% from December, 1986 (on a daily average basis).