March 18, 2010 / 2:08 PM / 10 years ago

Brook Hunt sees 10,000 tonne nickel deficit in 2010

* Deficit this year, surplus from 2011-1013

* Demand slowly returning, but more production coming

* Higher LME stocks may not mean more available metal

By Michael Taylor

LONDON, March 18 (Reuters) - The nickel market will be in a deficit of at least 10,000 tonnes this year but surpluses will return in the following three years as more metal comes onstream, Brook Hunt said on Thursday.

The combination of a pick-up in global stainless steel demand and the continued effects of producer cutbacks from late 2008 will see nickel prices average $8.50 a lb this year, Brook Hunt nickel analyst Andrew Mitchell told Reuters.

“We are expecting there to be a deficit this year,” Mitchell said. “It was about 10,000 tonnes but I know we’ve been working on the numbers. It might be over 10,000 tonnes now.

“In theory that should put some downward pressure on prices after this year.”

Nickel CMNI3 traded at about $22,260 a tonne at 1038 GMT, down from an all-time high of $51,800 hit in May 2007. The metal climbed 58 percent in 2009 to end the year at $18,525.

Mitchell said the pick-up in demand, although from a low base, had been evident in China and other stainless steel making regions.

Important examples of nickel production yet to return include Vale’s VALE5.SA Sudbury operations. [ID:nN14152809]

London Metal Exchange nickel inventories are currently at about 160,000 tonnes, down from record levels of 166,476 touched in early February.

For a graphic on LME nickel stocks and prices, click on: here

Mitchell, who was a speaker at the 2nd Annual Euro Nickel Conference in London, said that although nickel fundamentals remain weak, more nickel in LME warehouses does not always mean more available material than in previous years.

“I do wonder whether what we’re seeing is not just more stock being visible,” he said. “Historically you would have seen producers and consumers holding more stock than they currently are — therefore, that would have been hidden.”

“It is just a move to a more visible stock, rather than actually a much bigger stock than we’ve ever had before.”

World production of refined nickel totalled 1.386 million tonnes in 2008. [ID:nLN565179]

“Fundamentals are still poor,” Mitchell added. “We are now coming back to the fundamentals, with a genuine connection now.

“The stock issue seems to being either ignored or not concerned about.”

Brook Hunt is the metals arm of consultancy Wood MacKenzie. (Reporting by Michael Taylor; editing by Anthony Barker)

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