Nickel market maintaining its momentum

More than a few analysts see demand for the metal, which since early in 1988 has gone from tight to tighter, staying at record levels until at least mid-summer.

Recently trading in the $7-$8(US) per pound range in London, nickel averaged about $8.25 during the first three months of this year, well above its $6.27 average for 1988. (It is difficult to believe the metal averaged $2.61 in 1987).

Metal Bulletin recently reported nickel producers are having problems coping. Production schedules, it says, are stretched to the limit and stocks are below 1988 levels. It also reports major Canadian nickel producers Inco and Falconbridge have been purchasing nickel on the London Metal Exchange (LME).

An estimated 60% of the nickel demand is coming from stainless steel manufacturers, almost double what it was 20 years ago. Stainless steel consumption is reportedly growing at 3% per year.

The Royal Bank, in its weekly Commodity Price Review, recently commented on nickel prices and negotiations between producers and consumers over second-quarter contract needs. Inadequate coverage

“Last time around, some major Japanese and European stainless producers misjudged the market and, in anticipation of lower prices, failed to negotiate adequate coverage for the first quarter of 1989. They were then forced to turn to the spot market which subsequently produced the current nickel price rally,” write the bank researchers.

“While there is some uncertainty about the future direction of nickel prices, it seems few stainless producers will fail to negotiate adequate coverage for the next quarter. This points to the likelihood of lower spot prices.”

In a recent weekly report, investment dealer Shearson Lehman Hutton reports it foresees no “significant rises in stocks during the next month since demand continues to exceed supply and uncommitted stocks are virtually non- existent.”

On the consumer side, the U.S. Bureau of Mines reports Ford Motor Co. has ordered zinc-nickel coated sheet steel from Japanese steel mills for use in a 1990 model automobile. The electroplated coating comprises about 13% nickel, while the rest is zinc.

The zinc-nickel coated steel is reported to be popular in Japan and Europe. Ford has made it known that after the first three months of production, it would search for a domestic supply source. Problems overcome

Operations at PT Inco’s nickel smelter in Indonesia should return to normal this month. A blown transformer late last year set back that operation’s production schedule.

The force majeure declared by Outokumpu on nickel shipments from its Harjavalta refinery was lifted March 22 after 13 days. The force majeure was declared during a 3-day strike; a 3-week maintenance shutdown for the facility is planned to get under way during the latter half of May.

Average price predictions for nickel for 1989 include $6.50 per lb by Shearson and $6.35 by London brokerage house James Capel.

According to Capel, nickel has traditionally traded at about three times the price of copper and during 1988 that ratio rose to as high as 5.5. “From the producers’ point of view, such levels are felt to be unsustainable, and the major suppliers would be happy with a $4.50 per lb level in the longer term,” writes Capel.

Talk of a new tin contract for the LME is becoming louder.

According to Metal Bulletin, tin could be trading again on the exchange as early as June 1. A sub- committee of the LME is reported to have recommended in favor of the move.

A runup in tin prices has seen the New York dealer price of the metal (a weekly average price reported by Metals Week) top $4(US) per lb. Last year about this same time the dealer price was in the $3.20 range.

The U.S. publication reports concern by the Association of Tin Producing Countries about the higher prices, but in the same article it mentions the confusion throughout the industry about exactly how much tin is available and in what form.

Factors favoring a return to tin trading, the London-based Metal Bulletin points out, are the current volatility, sufficient inter-merchant business, higher prices and “enough market to make it work.”

Trading of tin on the LME was halted in 1985 by the British government, following a period when supply of the metal far exceeded demand but prices for tin remained relatively high.

The International Tin Council, a cartel-type organization in business since 1956 and composed of tin- producing and tin-consuming nations, ran into trouble in the early 1980s when non-members started to become strong players in the tin market. Over-production of the metal by ITC members finally caught up with them and with prices in decline, the global tin market more or less collapsed.

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