COMMENTARY — The growing demand for nickel

In its weekly “Metals” report, Billiton Metals comments on the nickel market and the metal’s recent wide trading band and price rebound:

Speculative activity was partly responsible for nickel’s renewed show of strength, although a tendency to focus on the positive demand side of the equation also contributed to the bullish tone. Indeed, the continued optimism about this market’s demand prospects are not without justification, given the ongoing strength of the stainless steel sector.

European demand for stainless steel has remained strong, surpassing earlier market expectations. Furthermore, this strength looks set to continue and it is reported that order books at a large number of mills are already full into January, 1995. Also, there has still not been a marked buildup in stocks held at distribution centres. However, there is some cause for caution insofar as it is widely believed that end-users are building up their stock levels. The outlook remains positive in Europe, and U.S. demand has also remained strong. In addition, Japanese stainless output has picked up sharply as a result of high export orders, and this is expected to continue. However, it is likely to be some time yet before Japanese demand itself improves markedly. Sentiment was also aided to some extent by a succession of reports of labor unrest at Norilsk’s operations, as the company apparently did not have sufficient funds to pay workers’ wages; nor could it pay for the shipments of vital supplies to its operations. Also, it was reported that Norilsk was not in a position to pay icebreakers to allow the exports of nickel during the winter period; this was subsequently denied.

While the potential threat to a disruption to supplies from this region still exists, concern appears to have abated. A Noramco official recently reported that Norilsk is expected to export around 80,000 tonnes of nickel in 1994 and Russian exports are forecast to total 100,000-110,000 tonnes . . . In our view, problems in Russia will result in exports falling to the West, although we believe that it will be quite a few years yet before the impact of this will be felt to any great extent . . .

Another important factor to take into consideration is that Western nickel production is also rising. Output this year is set to rise substantially at a number of major producers, such as Western Mining and Falconbridge, as well as at a number of other smaller operations. However, this will in part be offset by the cutback implemented by Inco earlier this year.