Toronto—Slower global growth—and to a lesser degree, the resolution of a year-long strike by Vale workers—will keep nickel prices on a downward trend until the fourth quarter, according to Patricia Mohr, vice-president of economics and commodity markets specialist at the Scotiabank Group.
Nickel prices were “extremely lucrative,” this year, she said. In April, the metal cost over US$12 a pound on the London Metal Exchange.
The Vale strike played a role, but the biggest factor was the boost in stainless steel production in G7 countries. Sixty percent of nickel supply goes into global production of stainless steel, Mohr said.
Since April, nickel prices have declined, to settle at $8.61 per pound on the London Metal Exchange on July 7.
“And that has more to do with concern over economic growth in the Euro-zone because of austerity measures… And also more recently, some concern over the potential for slower growth in China.”
China posted year-over-year economic growth of 11.9 percent in the first quarter of the year, but Q2 numbers won’t likely be as strong.
“Growth is going to slow down from that torrid pace, but we’re still expecting perhaps 9 percent growth, which I don’t think anyone would complain about. But some of the economic indicators in China do [show] some slowing in the pace of industrial production.”
China heavily restocked its commodity inventories in 2009, buying nearly 40 percent of global nickel supply. The restocking continued into 2010, so demand for nickel and other metals will be softer.
Stainless steel production in the G7 countries, including Western Europe and the US will probably fall back, before picking up again later in the year, Mohr added. At that point, nickel prices may respond with a rise.
Analysts had been speculating about the impact of a resolution to the Vale strike. The Brazil-based company reached a tentative agreement with striking workers in Sudbury, Ont. this week, but another group in Voisey’s Bay, Nfld. is still on the picket line.
Together, the two locations account for roughly 10 percent of global nickel supply, Mohr said.
“The [strike] has caused a shortage of certain high-quality refined nickel products in the United States. Particularly, nickel plate has been in very tight supply and has caused prices to rise.”
But even if Vale workers remain on strike, nickel prices will continue to decline until the fourth quarter, due to the larger influence of China, Europe and stainless steel production, she added.