July 14, 2011 / 2:18 PM / 8 years ago

NICKEL-Major market developments in June

LONDON, July 14 (Reuters) - Nickel prices rebounded from a sharp fall in June, but slow demand and concerns about an impending sharp rise in output will exert downward presure, or at least limit upside prospects in the next month or two.

“We’ve got a situation of rising production and slowing stainless demand growth,” said independent consultant Angus MacMillan.

Against this backdrop, he said prices were more likely to move lower than higher.

The London Metal Exchange three-months nickel price was last indicated at $23,920 a tonne.

Last month, prices fell to $21,337 a tonne at one point, their lowest since late November 2010.

“There are no real concerns about tight supply in nickel,” said Credit Agricole analyst Robin Bhar.

A number of new nickel projects have either started up earlier this year or are scheduled to come on-stream in the next couple of years.

“The market was in deficit in the first half of the year, but that should turn into a balanced or surplus market as new projects are commissioned.”

On top of that there are worries that Chinese production of nickel in pig iron (NPI) — a low-grade nickel destined mainly for domestic stainless steel mills — will jump sharply this year.

RBS analyst Daniel Major expected the upside for prices to be limited over the northern hemisphere summer months with demand from stainless steel mills, which was already soft in the second quarter, weaker due to holiday shutdowns.

But he thought any decline in prices would find good support around $21,500 a tonne, with the $20,000 level providing a solid floor after that.

Stainless steel accounts for around two-thirds of nickel consumption.

Below are some of the more significant recent developments in production, stocks and prices that may continue to influence the direction of the market in 2011.

PRODUCTION:

June 30 - Australia’s Minara Resources was forced to reduce production at its Murrin Murrin nickel ore processing facility due to an equipment failure but analysts said the incident’s impact on global supply and prices would be minor. The acid plant, where acid is run through the ore to recover a nickel solution, had to be taken offline after the incident while the damage was being assessed, the company said.

June 29 - BHP Billiton said production at its Kwinana nickel refinery in Western Australia had restarted as planned in early June. The plant, which has the capacity to produce around 70,000 tonnes a year of refined nickel, was closed in late May due to a shortage of hydrogen supplies from a third party.

June 22 - Underground operations at Zambia’s Munali nickel mine have been suspended since Friday 17 because of ventilation problems and should resume in three weeks, officials said.

June 15 - China produced 97,717 tonnes of refined nickel in the first five months of the year, up 31.4 percent from the same period last year, according to the National Bureau of Statistics.

PRICES

Nickel prices ended June at $23,425 a tonne, little changed from $23,595 a month earlier. But the market’s performance was not as steady as this would indicate.

Worries about Euro zone debt and weak demand from the stainless steel industry weighed on prices as did expectations that nickel supply will rise in the second half of the year.

On June 20, three-months nickel prices fell to $21,337 a tonne, their lowest since late November 2010.

The market recouped most of its losses under the influence of the LME benchmark copper contract as worries about Chinese demand receded.

But fears that politicians would be powerless to stop the debt crisis in Europe from spreading to Italy and Spain took their toll for a time, reinforcing worries about the outlook for the global economy.

A Reuters poll in January showed nickel cash prices were expected to average $24,251 a tonne this year versus an average $21,811 last year.

STOCKS

LME nickel stocks finished June at 106,836 tonnes, down from 114,894 tonnes the previous month.     After a brief upwards blip at the beginning of the month, inventories resumed the decline which has been in place more or less since the start of the year.

This is despite much talked about demand weakness in the key stainless steel industry.     By Thursday inventories were at not far above 100,000 tonnes, their lowest since late March 2009.     At the end of last month, LME nickel stocks amounted to almost 25 days of demand.

3000 Xtra users can access Reuters Metal Production Database MPD by clicking on: here Compiled by Karen Norton; Editing by Alison Birrane

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