The shine will get brighter

IN FOCUS / NICKEL

Future of nickel looks brighter in 2004 even after the bull run of 2003. The base metal shot up to a 14 year high last week on the London Metal Exchange (LME) and looks set to witness new highs in 2004.

The benchmark LME three-month nickel price hit 14-year high of $13,580/ton Friday, against the 2003 low of $7,115/ton notched on January 2.

Despite a spectacular run in the nickel price, analysts remain bullish on the metal and project that $22,000 a metric ton is "absolutely" possible over 2004.

Pointing to a large supply deficit of 46,000 tons in 2004, from a projected 1,000 tons in 2003, the bull run seems to have just begun.

The 2003 deficit was after including the release of a 60,000-ton stockpile by Russia's Norilsk Nickel that had been held as collateral for a loan.

Nickel saw its the last big bull run in 1988-1989, but this time there still appears to be scope for a further upside in prices. During the 1980's bull run, nickel prices soared to $24,250 /ton, according to a report by Macquarie Bank.

Macquarie itself has upgraded its price forecasts in this report - its latest projection puts the average LME cash price at $4.21 a pound in 2003 and $6.75/lb in 2004. These translate to $9,281.40/ton and 14,881.05/lb respectively.

These bullish forecasts are despite the current trend of stainless steel producers replacing nickel with other materials, said Macquarie Bank.

In fact, the bank said this trend will continue as the major nickel producers are not raising supply due to the huge capital cost, country and technical risks associated with the next generation of nickel projects.

India, a net importer of nickel, will feel the effext of this. The stainless steel industry uses nickel as primary input. Input costs have shot up and will rise further.

Demand for stainless steel (SS) in the domestic market has been improving as new application areas either have emerged or were in the process of being established. The non-utensils segment has been witnessing growth in the usage of SS.

The non-utensil segment consists of chemical and process industries, new and non-traditional application areas, such as, architecture, building and construction (ABC) and automobiles, railways and transportation (ART) and household usages such as kitchen sinks, gas stoves etc.

Stainless steel producers use around two-thirds of the world's nickel supply. SS use in China alone was up 50 per cent this year.

The lead indicators of the Organization of Economic Cooperation and Development show that strong growth in stainless steel production will come also outside China.

Nickel stocks are running only about eight weeks of consumption, regarded as low in the industry. Demand for metal from stainless steelmakers as a toughening alloy has steadily risen.

About 70 per cent of nickel mined each year is bought by stainless steelmakers. Global demand for the metal, running at around 1.2 million tonnes a year, should grow 4.8 per cent in 2003, rising to 8.5 per cent next year.