Nickel Stock Financing May Help Limit Glut and Support Prices

Nickel is staying in surplus through at least 2015 and traders may be tempted to use the metal in financial transactions similar to deals in aluminum and zinc, helping to boost prices, Standard Bank Plc said.

Nickel demand may lag behind supply by 35,000 metric tons next year after a surplus of 48,000 tons this year, Leon Westgate, an analyst at the bank, said in a report today. Aluminum and zinc have both been supported by financial transactions that have kept metal from consumers.

“Ongoing stock financing activity should help to absorb surplus metal in those markets facing oversupply, with nickel also set to join the likes of aluminium and zinc,” Westgate said in the report. “Prices are still expected to rise in these markets, on artificial tightness.”

A financing transaction involves a simultaneous purchase of metal for nearby delivery and a forward sale to take advantage of a market in contango, when contracts with later delivery dates trade at higher prices than near-dated metal. There are more than 5 million tons of aluminum in warehouses monitored by the London Metal Exchange and zinc stockpiles are up 26 percent this year to more than 1 million tons.

Nickel inventories are up 40 percent this year to 126,342 tons, the highest since March 2011, according to LME data.

Nickel Prices

Aluminum is down 2 percent this year and zinc is up 4.5 percent, outpacing nickel’s 9 percent drop. Nickel will average $18,550 a ton next year, Standard Bank said, up from $17,797 a ton so far in 2012.

Aluminum will average $2,225 a ton next year with supply outpacing demand by 715,000 tons compared with a 175,000-ton surplus in 2012, according to the report. Zinc will average $2,045 a ton in 2013 with a surplus forecast at 221,000 tons, Standard Bank said.

As much as 88 percent of zinc stockpiles in warehouses monitored by the LME are unavailable as the metal is either tied in the so-called financing deals or awaiting delivery, Citigroup Inc. said in report Oct. 9. About 65 percent of aluminum stockpiles are locked in financing deals, top producer United Co. Rusal estimates.

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