NICKEL INTRODUCTION: Nickel is a metal with a bright future as it is the main alloying metal needed to produce certain types of stainless steel. The strength and life span of products built with stainless steel is vastly superior to similar products built with non-stainless steels. Hard, malleable, ductile, silvery-white metal. Used in alloys, magnets, coinage, and stainless steel. Also for armour plate, plating, and produces a green color in glass. Nickel is pre-eminently an alloy metal, and its chief use is in the nickel steels and nickel cast irons, of which there are innumberable varieties. USES OF NICKEL It is also widely used for many other alloys, such as nickel brasses and bronzes, and alloys with copper, chromium, aluminum, lead, cobalt, silver and gold. Here is a chart on what nickel is used for: 22% 8% 5% Stainless Steel (65%) 65% Other alloys (22%) Electroplating (8%) Chemicals (5%) Nickel's primary use (65%) is in the manufacturing of stainless steels, with a further 22% of nickel consumption being used to produce other steel and non-ferous alloys, including super alloys. 8% of nickel is used in electro-plating with about 5% being used in coins and nickel chemicals. 02/04/2009 1
MAJOR NICKEL PRODUCING COUNTRIES 5% 15% 14% 16% 21% 29% Russia America Europe Australia Asia Africa Although Nickel is concentrated in the hands of few producers, its geographical production base is quite evenly spread. About 29% nickel is produced in the former estern bloc, 21% in the America, 16% in Europe, 15% in Australia, 14% in Asia, and 5% in Africa. Amongst consumers whole Asia including major share of China, US are the major user of Nickel NICKEL PRODUCTION AND CONSUMPTION SCENARIO.. Nickel mine production was forecasted to decline by 3% to 1.55 million tones in 2008. A number of mines have been recently commissioned or are expected to commence operating in the short term. However, disruptions to existing operations because of industrial disputes and falling nickel prices are expected to more than offset production from new mines, resulting in lower world mine production for 2008 and 2009 as a whole. Due to the slump in prices, highcost mines are expected to be placed on care and maintenance or to reduce output, while new mines are forecast to start up relatively slowly. (Source : INSG) According to the International Nickel Study Group (INSG), world primary nickel usage (consumption) was 1.31 MT in 2007, and was estimated to increase to 1.38 MT in 2008. For 2009, a slow recovery of nickel usage is anticipated, with main increases taking place in Asia and is forecast at 1.44 MT. As in recent years, the key factor in the 2009 forecast remains the increase in demand from China for nickel and nickel containing products. Again on the other side Stimulus packages announced for infrastructure and other sectors by world s two major economies i.e. US and China giving sentiments of arriving demand for such metals in the near future. 02/04/2009 2
BASIC FUNDAMENTAL FACT ABOUT NICKEL.. Nickel accounts for more than 60 percent of the cost of making the most popular 300 series of stainless steel, which contains about 9 percent of nickel. The 300 series, also known as austenitic steel, contains the highest content of nickel among the different varieties of stainless steel, while other types, such as 200 series and 400 series contain very little or even no nickel content. The production of 300 series of stainless steel was around 72% in the year 2000 of total global crude stainless steel production. 16% 2000 12% 400 Series 200 Series 300 Series 72% Production of 300 series stainless steel production dropped from 72% of total stainless steel production in 2000 to 53% in 2007, as nickel prices soared rapidly during this period, resulting in increased output of lower nickel content stainless steel and introduction of NPI(Nickel Pig Iron). 2007 27% 20% 400 Series 200 Series 300 Series 53% 02/04/2009 3
The major reason for this drastic fall in 300 series share was use of NPI (Nickel Pig Iron) which is the substitute of Refined Nickel. Because of rising prices of Nickel, In China from 2005 NPI was come into use and producers started shifting to low grade NPI due to its lower cost of production as compared to refined nickel. As China is major consumer of nickel it has been estimated that China's annual nickel consumption will exceed production growth between 2008 and 2012, as long as nickel pig iron production remains stable at 100,000 tonnes of nickel metal content per annum, due to the low nickel price. In 2008 the figures has shown that 300 series is again capturing its share in the total global crude stainless steel production because producers are again shifting to quality refined nickel instead of NPI as nickel prices has crashed drastically and fallen below the cost of production of NPI. So with the increase of 300 series stainless steel consumption, the 300 series' share of total stainless steel production has increased to 61% in 2008 from 2007's 53%. And it is expected to rise further. 28% 2008 11% 400 Series 200 Series 300 Series 61% So this is one of the major fundamental factors which can affect Nickel prices to trade on higher side. TOTAL GRADE WISE GLOBAL CRUDE STEEL PRODUCTION IN 2008.. GRADE CATEGORY SERIES QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 YEAR 2008 Chromium-nickel (CrNi) 300 63.2% 60.7% 59.0% 57.9% 60.5% Chromium 400 26.3% 27.8% 30.2% 28.6% 28.1% Chromium-manganese (CrMn) 200 10.5% 11.5% 10.8% 13.5% 11.4% 02/04/2009 4
NICKEL MAJOR MINE PRODUCION CUTBACKS, CLOSURES AND DELAYS Australia is one of the major producer of nickel, but all operations of nickel have been suspended due to falling prices. Australia accounts for 15% of total nickel production in the world. BHP Billiton Ltd said that it had scrapped a study on developing an integrated nickel project in eastern Indonesia, while Xstrata Plc announced plans to cease operations at Craig and Thayer-Lindsley nickel mines ahead of schedule. BHP Billiton Ltd., the world s largest mining company, suspended operations at its Ravensthorpe nickel mine in Australia. Mining giant BHP Billiton Ltd/Plc closed its giant Ravensthorpe nickel mine in Australia, producing 20,000 tonnes of refined nickel a year, which had been expected to expand capacity to 50,000 tonnes next year. Norilsk, the world s largest producer of nickel, closed the Cawse mine near Kalgoorlie in October before last month saying it was halting its Western Australian nickel operations to cut costs after prices fell 80 percent in less than two years. Annual production of Norilsk is around 220000 tones. The Kalgoorlie Nickel smelter normally produces 100,000 tons of nickel-in- matte that is feedstock to the Kwinana nickel refinery. Brazil's Vale said it was reducing production at some high-cost operations, including a 20 percent cut in nickel output at its PT Inco unit in Indonesia. The company will also reduce activity by 65 percent at its Dalian processing unit in China. Cuba's nickel industry was still operating at around 81 percent capacity six weeks after taking a direct hit from Hurricane Ike. Canada's First Nickel Inc said it suspended output at its Lockerby mine as the company grapples with low prices. Australian miner Mincor Resources NL said it expects its production of nickel ore to be in a range of 16,000-19,000 tonnes in fiscal 2009, down from an original plan of 19,500-20,500 tonnes. Australia's Minara Resources Ltd said it had to defer its Australian $273.5 million nickel expansion plan due to high costs. A heap leach expansion, increasing the firm's annual output of nickel by around 8,000-10,000 tones per year by the end of 2009 had to be postponed. It is noted that POSCO had cut stainless steel production by 17% to 334,000 tones in the third quarter from the previous quarter and would reduce production by 30% or 150,000 tonnes in the current quarter. 02/04/2009 5
RUSSIA'S Norilsk Nickel, world's biggest Nickel mine, will suspend the two mines in its Australian nickel operations because low prices have made the operations unsustainable. BOTTOMING OUT PRICES If we compare nickel prices from March 2008 which was near about $29800 to 2009 march which is around $9800 it has fallen by around 70%. One of the major area of concern is rising LME inventories. But it has been observed that though inventories are rising, it is not giving any major impact on prices. LME Nickel Stocks v/s Prices As we can see the LME stocks and Nickel prices follow inverse relationship. The major factor which may restrict Nickel s upside move is its rising stockpiles, it has been observed that thought inventories are rising but due to various stimulus packages announced for infrastructure and other sectors by world s two major economies i.e. US and China giving sentiments of arriving demand for such metals in the near future. So the down side risk is limited. Seasonal Pattern: Construction in China typically picks up after the winter, driving increased consumption of the metal used for infrastructure like copper and steel. In china majorly steel is being used for infrastructure developments. 02/04/2009 6
PERFORMANCE OF STAINLESS STEEL SECTOR AS A WHOLE.. As Nickel s around 70% usage is in Stainless Steel sector, the Steel production and consumption plays very important role in Nickels price movement. The world stainless steel production reached 25.9 million metric tons (mmt) in 2008 according to preliminary figures released by the International Stainless Steel Forum (ISSF). The total is 6.9% lower than 2007 level. After a decrease of 2 % in 2007, this is the second year in a row that world stainless steel production has decreased. January 2009 Production data of Stainless Steel: World steel production in January 2009 was 4.5% higher than the previous month mainly as a result of the 9.9% increase in Chinese production. China s crude steel production for January 2009 was 41.5 mmt, an increase of 2.4% on January 2008. Indian steel production has done well despite the global meltdown. Steel production witnessed a 2.5 percent jump in January 2009 as demand for products in the construction sector went up slightly. This increase in production is indeed a good sign given the fact that the domestic steel industry for October. Australia showed a -36.4% decrease from January 2008, producing 0.4 mmt of crude steel in January 2009. The US produced 4.1 mmt of crude steel in January 2009, a decrease of -52.7% compared to the same month last year. Japan produced 6.4 mmt of crude steel in January 2009, down -37.8% compared to the same month last year. 02/04/2009 7
FUNDAMENTAL FACTORS BULLISH FACTORS Rise in 300 series stainless steel consumption, the 300 series' share of total stainless steel production has increased to 61% in 2008 from 2007's 53%. And it is expected to rise further. One of the major factor for nickel to trade upside. Australia is one of the major producer of nickel, but all operations of nickel have been suspended due to falling prices. Australia accounts for 15% of total nickel production in the world. Apart from Australia there have been huge production cuts by other major producing countries and mine like Brazil's Vale, Canada's First Nickel Inc, Russia s Norilsk nickel etc. This is giving good support to prices to remain on higher side. Construction in China typically picks up after the winter, driving increased consumption of the metal used for infrastructure like copper and steel. In china majorly steel is being used for infrastructure developments. Stimulus packages announced by world s two major economies i.e. US Fed officials voted to buy as much as $1.15 trillion of assets in an effort to revive the world s biggest economy. The U.S. is the second-largest consumer Industrial metals after China and China has increased spending in areas including infrastructure and manufacturing on top of the 4 trillion yuan ($584.7 billion) stimulus package. Government spending on roads, bridges and other infrastructure projects will boost demand for the metal used in industries. BEARISH FACTORS As 70% usage of nickel is in Stainless Steel sector, its fortune is very much dependent on performance of SS. The growth of SS will be on a slower pace, so this may give some pressure on nickel prices. The inventories in LME are rising very sharply, this may restrict upside move of nickel in the short term, but huge production cuts and stimulus packages announced by major economies are supporting prices. FUNDAMENTAL OUTLOOK Given the sharp downtrend in prices, many producers had cut down their respective metal output. Weak demand from stainless steel sector has resulted in prices tumbling to below $9000 per tonne levels. Prices have fallen down by around 70% from last year march to this year y-o-y basis. The IMF has forecasted economic growth in China of 8.5% in 2009 compared to 9.7% in 2008. 02/04/2009 8
The expected production surplus is likely to be offset largely by mine shutdowns and project delays. This can provide support to prices and can result in a short-term pullback in the market. However, higher stockpiles are likely to pressurize prices to trade lower. Given the sharp decline in prices and increasing production cuts, we expect the downside risk to prices to remain limited. The losses will be limited by the expected improvement in demand from US and Chinese governments stimulus plans. Overall Nickel is expected to trade range bound with upwards bias in the short term and expected to trade on higher side in the long run. TECHNICAL OUTLOOK.. DAILY MCX NICKEL CHART: In Daily Chart of Nickel, it gave Trend Line Breakout with sustainable Closed above the trend line have turned the bias positive. At that point the near term bias remains on the upside as long as 480 supports hold. Below 480 will turn outlook back to the downside to 450 and below that could capture the prices till 430-420. In the bigger picture, the downside momentum is clearly diminishing as seen in bullish Trend Line breakout in Chart. Hence closing above 500 will be an important alert that Nickel has already bottomed out in the near term and the immediate target for Nickel above 500 are 536-580. CALL-BUY MCX NICKEL APRIL ABOVE 500 FOR THE TARGET OF 535-570 WITH A STOPLOSS OF 478. (CMP-498) 02/04/2009 9
Disclaimer: This report is neither an offer nor a solicitation to purchase or sell Commodities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the Commodities mentioned in their articles. Neither Ventura Commodities Private Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private circulation. 02/04/2009 10