Nickel Stockpiles Should Rebound as Market Shifts to Surplus

Declining nickel stockpiles monitored by the London Metal Exchange will rebound as the market for the metal shifts to surplus this year, according to Macquarie Group Ltd., an Australian investment bank.

Nickel is the only base metal traded on the LME to record a decline in its inventories this year. Refined nickel usage exceeded output by 24,000 metric tons in the first half, according to estimates by Barclays Capital.

“The market is going to move into surplus and that’s when you’re going to see LME stocks stop declining,” Jim Lennon, head of commodities research at Macquarie in London, said by phone yesterday.

Nickel stockpiles tracked by the LME advanced for a second day, rising 780 tons to 102,486 tons, exchange data showed today. Consumption was 124,000 tons in May, lagging behind refined metal output of 125,700 tons, the first monthly surplus since December, the International Nickel Study Group said in a report July 19.

Nickel for delivery in three months rose $402, or 1.7 percent, to $24,202 a ton by 1:06 p.m. on the LME. The prices should fall below $20,000 a ton in the longer term as production increases and in the absence of “sustained consumption increases,” Steve Hardcastle, head of client services for industrial commodities at Sucden Financial Ltd. in London, said in a quarterly report sent July 20.

Less metal is consumed as the stainless steel market, which accounts for more than 60 percent of nickel demand, slows throughout the July-September period, according to Lennon.

Demand for nickel may drop in China as the country accelerates production of nickel pig iron, a cheaper alternative to refined metal, Lennon said. Shipments of refined nickel and alloys into China fell 26 percent to 13,892 tons in June from May, according to Bloomberg data.

Nickel Inventories

Nickel production should increase in the second half of the year as producers such as BHP Billiton Ltd. and Vale SA ramp up production following disruptions earlier this year, Lennon said.

Inventories monitored by the LME fell to 101,418 tons on July 22, the lowest level in more than two years. They are down 24 percent this year.

“You just had a lot of existing producers fall well short of their production plans and they’ve had to go into the market to take the material off the LME to meet their customer delivery requirements,” Lennon said. “That should start to turn.”

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