Chinese Demand Seen Lifting Nickel Prices

Nickel prices could reach more than $15,000 a metric ton over the next two years due to an expected boom in Chinese demand, an extremely limited supply response and chronically low global stock levels, according to report given during the Metal Bulletin Ferro Alloy Conference & Exposition in Monaco.

Jim Lennon from Macquarie Bank said prices could push up to levels last seen 15 years ago.

"Prices will have to rise sharply -- and may stay high for a long time," he said.

China would play the dominant role in nickel prices because of the strong pace of its demand, particularly in stainless steel production, he said.

In global terms, Chinese consumption accounts for more than 21 percent of a total 1.242 million metric tons.

Stainless steel production accounts for two-thirds of nickel consumption.

Chinese stainless steel production is set to rise to about 12 million metric tons by 2010 -- equating to more than 50 percent of current total world output.

"China is now driving nickel growth," Lennon said.

Additionally, low nickel stocks and tight availability in nickel-contained stainless steel scrap prices would lift prices, he said.

"Prices came under some pressure from the liquidation of a Russian (Norilsk) stockpile, much delivered into LME warehouses, but the Inco strike earlier this year, with the loss of 25,000 metric tons, was a big offset," Lennon said.

"Weaker stainless markets in Europe and the United States are causing some concern, but buying support remains remarkable, especially from a booming China."

Lennon said market stocks would fall to their lowest level ever -- 123,000 metric tons by end-2005 from currently 180,000, leading to an LME cash price well over $13,000 a metric ton.

He predicted world nickel production at 1.387 million metric tons by the end of 2005, compared to 1.390 million-ton consumption.

However, increased output was unlikely given long lead times and with the industry already producing flat out. New nickel projects, like those in Australia, are struggling financially because of expensive operating costs, so sustained high market prices may be needed to change attitudes towards investment, he said.

Australian projects initially promised output costs below $1 a lb -- but were actually more like $3, he said.

Nickel prices have already been driven by about 50 percent higher this year on speculative fund buying, and the weight of this money could push prices higher and sooner than market fundamentals would imply. Reuters