Nickel price to fall, but not drastically

The base metal, which climbed to $10.84(US) per lb and averaged $6.27 in London in 1988, averaged $6.66 to about the end of September. During the first half of 1989, the metal averaged $7.14.

International securities firm Shearson Lehman Hutton, in its Annual Review of the World Nickel Industry 1989, foresees nickel averaging $6.20 for all of 1989 and $4.25 for 1990. The company points out how exceptional 1988 and 1989 have been for nickel; between 1982 and 1987, the metal averaged $2.11.

Broker James Capel, in a recent report, also sees the nickel price easing, but not to the lower levels. “Nickel, above all other metals, has shown its ability to surprise. Price volatility and nickel go hand in hand,” writes the London-based company.

Fueling the nickel boom the past two years has been the demand by the stainless steel sector, which accounts for about 60% of total nickel demand. According to Shearson, stainless steel output registered double-digit growth in 1987 and 1988, with demand continuing strong during the first half of this year.

“This strong growth reflected exceptionally strong underlying consumption, but also massive stockbuilding in anticipation of further rises in nickel and stainless steel prices,” write the firm’s researchers.

“The stainless steel producers inadvertently encouraged this development by introducing a nickel surcharge system for stainless steel, based on LME nickel price averages, months before the actual delivery of the stainless steel.”

Helping to slow the market now is the over-production of stainless steel during 1988 and the first half of 1989. Shearson forecasts a 1% year-on-year drop in non-communist world stainless steel output this year and a 2% drop in 1990.

Demand for non-ferrous alloys is being helped by a boom in commercial aircraft engine production and still buoyant capital spending. Good growth is continuing in the nickel-cadmium battery field. On the down side, the plating and foundry sectors appear to be rejecting the high nickel prices.

Shearson projects a drop in nickel consumption of 0.6% this year to 666,000 tonnes, and a 2.4% reduction in 1990 to 650,000 tonnes.

Primary nickel production, which rose 5.7% in 1988 to 558,400 tonnes, is projected to climb by 3.4% this year and by 6.7% in 1990. “Improvement will largely come from higher operating rates and expansions at existing plants or the reactivation of old plants, as there are no major greenfield projects in the pipeline,” Shearson writes.

In particular, Japanese output (from imported matte) is expected to continue to increase, by 5% this year and by 4.7% in 1990.

Nickel supplies from the communist nations are having a greater impact than in recent years, Shearson reports. The Soviet Union, long the dominant supplier, is facing competition from Cuba. Net exports in 1988 from the communist nations, at 74,000 tonnes, were equal to 11% of total non-communist world nickel consumption.

Last year marked the seventh straight year of deficit for the nickel market; Shearson says a surplus will likely emerge during this last quarter of 1989. Next year, it predicts a surplus of 46,000 tonnes, with market stocks at the end of 1990 of 130,000 tonnes, representing 2.4 months of consumption.

Nickel, the Shearson researchers point out, is the smallest of the major base metal markets. By comparison, it is less than one-twentieth of the size of the aluminum market and one-eighth of the size of the lead market.

Canada is the largest producer- nation of nickel in the non-communist world, accounting for 36% of the market in 1988. That level of primary production was down from slightly more than 40% in 1975 and about 75% in 1965.

Other top producer-nations last year included New Caledonia, Australia, Indonesia, the Dominican Republic and Botswana in Africa.

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