Nickel price to continue fall

Nickel, which has fallen more than any other metal on the London Metal Exchange this year, will extend declines in 2006 on rising mine production and dwindling demand from stainless steelmakers, ABN Amro Holding NV said as quoted by Bloomberg.

``Stainless steel cutbacks and the start of a parade of new refined supply were seen as tarnishing nickel's price outlook for at least the next two years,'' Nick Moore, a London-based analyst at ABN Amro said.

Nickel, which is used to make steel malleable and corrosion resistant, may fall to an average $5.30 a pound, Moore said, 21 percent lower than his estimated average for this year. Nickel rose to a 17-year high of $8.12 a pound on May 12, and has fallen 35 percent since then to about $5.31 a pound. The metal is also used to make compact discs and for encryption in credit cards.

ABN Amro, the biggest Dutch bank, has been predicting declines in base metals for much of this year. Only nickel, lead and tin have fallen, while copper surged to an all-time record of $4,018 on Oct. 20. The bank's 2006 estimate for nickel is lower than Standard Bank's forecast of $5.89 a pound and Macquarie Bank's $5.40 a pound prediction.

Luxembourg-based Arcelor SA and ThyssenKrupp AG, the world's largest stainless steelmakers, cut output in the third quarter on weaker demand for the alloy. The reductions lowered nickel demand by 45,000 tons, Moore said, and led to stockpiles in LME-appointed warehouses rising to 19,176 tons, their highest in almost a year.

GMKN Norilsk Nickel, the world's biggest producer, said prices of the metal have become increasingly reflective of supply and demand after speculators cut their holdings.

``We've seen the froth of speculative interest in nickel just blown away,'' David Humphreys, chief economist at the Moscow-based company, said on Oct. 31.

Under Threat

Nickel used in stainless steel is under threat from producers in China and India making new brands of the alloy with low or zero nickel content, Standard Bank said in a Nov. 1 report. While stainless steel output will rise 4.5 percent this year, production of primary nickel used for stainless steel will increase 1.9 percent, the report said.

Global nickel production will rise to 1.35 million metric tons in 2006 compared with 1.29 million tons this year, The Hague, Netherlands-based International Nickel Study Group said on Oct. 26. That will beat consumption by 10,000 metric tons.

Inco Ltd., the world's second-largest nickel producer, started its Voisey's Bay mine in Newfoundland, Canada this year, and will produce 110 million pounds of nickel contained in concentrates in 2006, adding to a production surplus. Inco made a C$12.8 billion ($10.8 billion) takeover bid for rival Falconbridge Inc. on Oct. 11, which would allow it to overtake Norilsk Nickel as the world's largest producer.

Inco's Manitoba nickel refinery will also avoid strike disruption after signing a new agreement with workers on Sept. 15, helping lower prices, Moore said.

Global stainless steel production will fall 9.7 percent in the second half of this year, the Bureau of International Recycling said on Oct. 28. World output for all of 2005 will drop 4.5 percent, the BIR said.

By contrast, nickel demand will outweigh production from mines and scrapyards by 50,000 tons between 2006 and 2009 because of surging stainless steel demand from China, Inco said Oct. 13.

``The price of nickel is projected to remain strong and supply will be limited for years to come, thanks largely to China,'' Nick Sheard, Inco's vice president of exploration, said in Manila on Oct. 13. Inco is spending $1.9 billion on its Goro nickel project in the French overseas territory of New Caledonia.

Vale do Rio Doce, the world's largest iron ore exporter, will spend $1.5 billion developing its Vermelho nickel project in northern Brazil, while BHP Billiton is developing the Ravensthorpe mine and expanding its Yabulu refinery in western Australia, at a cost of $1.8 billion.

Jinchuan Group Co., China's largest nickel producer, is exploring for nickel in Madagascar, Australia, Spain and Indonesia for deposits of the metal. It also may reopen a mine in the Philippines.

``If it receives the green light, it makes our forecast market surpluses even more bearish for the nickel price,'' Moore said.(*)