MARKET FUNDAMENTALS PREVAIL AT LAST IN NICKEL MARKET

The stainless steel market has been in a state of flux for most of 2007. EU mills started to cut production. The Chinese took similar action. Producers have been seeking alternative sources of nickel units. They have also been promoting nickel free steels. Customers are testing substitute stainless grades.

All this frantic activity was required because the LME cash price for nickel was pushed ever higher and reached a figure of over $US52,000 per tonne in May. The performance of nickel on the LME was defying traditional market fundamentals. Stocks were rising, stainless steel output growth was in reverse and the percentage of nickel usage went into decline.

Despite these negative factors, the LME nickel price continued to increase until June 2007, when the exchange intervened. It modified the lending guidance for nickel. This is an instrument to prevent trading from becoming disorderly. There has been talk that speculators were driving the metal price higher. We also heard rumours of market manipulation. All these are unsubstantiated. In fact, it is said that traders responsible for pushing nickel prices higher were playing within the rules in place at the time.

All this is now in the past. The result of the LME's action is a decrease in the cash price of nickel from its high last month to below $US37,000 on 21 June. This will result in the EU alloy surcharge for 304 cold rolled coil rising in July by €134 and falling over the following two months by a total of €739 per tonne. Equivalent figures in the US were $US154 and $US1422.                    02.07.2007

Source: MEPS - Stainless Steel Review - click here for a free sample copy.

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