Nickel supplies will exceed demand by 52 percent more than forecast last month as consumption outside of China is weak and new projects are adding production, according to Macquarie Group Ltd.
The surplus will be 82,000 metric tons this year, compared with the previous estimate of 54,000 tons, Jim Lennon, an analyst at the bank in London, said in a report e-mailed today. It was 97,000 tons last year, he said. Cuts to production are needed to rebalance the market, he said.
“From a fundamental perspective, there is no reason for optimism about the nickel price in 2013 unless there are large-scale production cuts,” Lennon said. “Apart from Chinese nickel pig iron, producers in Australia and Canada are also suffering from a high exchange rate against the U.S. dollar, and further cuts here seem likely.”
Nickel for delivery in three months fell 10 percent this year on the London Metal Exchange and yesterday fell to the lowest price since July 2009. LME-monitored stockpiles of the metal mostly used to make stainless steel increased to 172,296 tons, the highest on record, exchange data showed today.
While output of stainless steel is strong in China, the biggest consumer of the metal, production elsewhere is weak, signaling slowing demand for nickel, Lennon said. The use of stainless steel scrap by consumers in Europe is increasing and is negative for primary nickel, he said.
“Demand is lackluster and very much a hand-to-mouth situation at the moment, at least from a stainless perspective,” Andrew Mitchell, an analyst at Wood Mackenzie Ltd. in Guildford, England, said by e-mail.
China’s production of nickel-pig iron, an alternative to refined metal, will rise 16 percent to 400,000 tons in 2013, Macquarie estimates. Output from non-Chinese projects is higher this year than previously expected, Lennon said.
Vale SA, the world’s second-largest nickel producer, said this week output for the metal rose 3.2 percent in the first quarter to 65,000 tons, beating a 62,800-ton average forecast by seven analysts surveyed by Bloomberg.
Nickel open interest, or the number of outstanding futures, rose to a record 192,170 contracts on April 15, increasing 17 percent from March 21. Prices declined 7.1 percent during the period. A combination of rising open interest and falling prices implies investors held “large” bearish bets, according to Macquarie.