Nickel market looks to a better year

While 1986 was a difficult year for nickel producers, the market should pick up during the rest of this year and carry over to 1988, Shearson Lehman Brothers forecasts in its latest annual review of the industry.

Last year, the price for nickel fell from $1.89(US) per lb to $1.60 in December, with the market weakness continuing on into the new year. A 4-year low of $1.55 was reached in January.

Buoyed by stronger-than-expected demand from the stainless steel industry, nickel prices rallied and by the end of April had reached $1.85. Other factors which added to the bullish sentiment were the low level of the stocks both on the lme and in the hands of producers, together with the shortage of stainless steel scrap and a decline in Soviet shipments of nickel.

Another influence, the firm reports, has been options trading; grantors of call options have been in the market to cover their positions as declaration dates approach. As this options business was imposed on a market that was already tight, it had a disproportionate effect on prices and helped to push prices past the $2 mark. The upward move was overdone and prices quickly fell back from the high of $2.17. A volatile market has seen prices trade in the $1.95-$2.15 range.

Shearson is forecasting a cash price on the lme averaging $1.90 for 1987 as a whole, despite an average price for the first four months of the year of $1.69. In 1988, the firm is forecasting an average price in the $2.10 range.

Shearson notes that global output of nickel fell below 500,000 tonnes in 1986 for the first time since 1983, although Inco Ltd. produced about 8% more nickel last year than in 1985. The firm forecasts a return to the 500,000-tonne- plus level this year and in 1988. Non-Socialist nickel consumption fell in 1986 by 3.3% to 552,000 tonnes, the second year in a row it has declined.

While supply of nickel exceeded demand in 1986, Shearson sees the market returning to a deficit this year, in the order of 8,000 tonnes.

Based on lower Soviet exports of nickel to Europe so far this year compared with 1986, Shearson has downgraded its estimate of net East-West trade to 40,000 tonnes compared with an estimated 50,000 tonnes in 1986. However, in 1988, total Socialist exports of nickel could rise thanks in part to expansion of production capacity in Cuba, which last year experienced technical problems at its new Punta Gorda plant.

In its report, Shearson looks at other alloying metals — chromium, cobalt, molybdenum, tungsten and vanadium — which share many similar end-uses in that to varying degrees they are used to impart strength and/or corrosion resistance in the manufacture of a variety of steels and non-ferrous alloys.

Last year these metals experienced disappointing price perfomances; with the exception of vanadium, the average price of these metals fell varying from cobalt’s 38% decline to chromium which lost 8.1%. Tungsten, vanadium and molybdenum, for example, are widely used in the oil and gas exploration/extraction industries which have been hard hit by the drop in oil prices.

Attempts by industries to find substitutes for these metals has also affected consumption, and Shearson points out that future consumption for some of these metals may lie in their non-metallic uses. Cobalt, it reports, has application in catalysts and as a drier in paints, where it may be about to displace non-ferrous alloys as the major end-use.

Shearson forecasts 1987 average prices of 40 cents per lb for chromium, $6.25 per lb for cobalt, $3.20 per lb for molybdenum, $50-$55 per mtu for tungsten and $2.45 per lb for vanadium.