Commodity Blog

Commodity Prices – Nickel

Oil, nickel and wheat slumped today, followed by most other commodities, as the uncertainty about the future of the world economy damped global demand.

At present, the main driver for markets is the situation in Europe. The European leaders were meeting on the weekend and then yesterday, but it’s still unclear what measures will be taken to resolve all the difficulties region has encountered. The absence of clear answer to the issue of Europe keeps traders in depressed mood. The Standard & Poor’s GSCI Index fell 1.8 percent.

Oil also fell after the US stockpiles of crude increased more than was forecast. US crude oil inventories increased by 4.7 million barrels 337.6 million barrels from the previous week, while the increase by 500,000 barrels was anticipated by analysts.

Brent crude oil traded at $109.97 per barrel today as of 00:44 GMT on ICE, following yesterday’s drop from $110.85 to $109.50 per barrel. Nickel declined from $1008.50 to $973.50 per kilogram on MCX before trading today at $972.20 per kilogram. Spot price for wheat was $6.2375 on CBoT today per bushel after it fell from $6.3650 to $6.1950 yesterday.

Industrial metals, including copper and nickel surged today, after the European Union summit ended this weekend and China’s manufacturing expanded. Among gainers were also aluminum, lead, tin and zinc.

The European leaders discussed the measures to support the region’s banks. They were also working on the plans to end the sovereign debt crisis that likely will be revealed at the summit on November 3. The forceful restructuring of Greece’s debt was rejected.

China was showing signs of slower economic growth and that was bad for commodities in general and for industrial metal in particular. Today’s report about China’s manufacturing brought some relief and encouraged traders to invest in metals. The HSBC Flash China Manufacturing Purchasing Managers’ Index increased to 51.1 in October from 49.9 in the month before.

Copper settlement advanced from $3.2190 to $ 3.4470 per pound today as of 23:50 GMT on COMEX. Spot price for nickel jumped from $945.90 to $996.0 per kilogram on MCX today.

The negative influence of the faltering global recovery and the debt situation in Europe were felt today on markets. Oil was down on the speculation that the weaker economy will lead to weaker demand. Meanwhile, gold also slipped as traders were selling the precious metal to cover losses from the slump of commodities.

The MSCI All-Country World Index of stocks reached the lowest level in more than two months. The Standard & Poor’s 500 Index was falling for six consecutive weeks.

Contract for delivery of crude oil in July dropped $0.66 to $98.63 per barrel in electronic trading on NYMEX. August futures for gold delivery retreated $13.60 (0.9 percent) to $1,515.60 by 13:53 on COMEX.

Nickel fell today on the speculation that the metal may have a biggest surplus in four years. Bank of America Merrill Lynch predicted that nickel’s surplus may reach 60,000 metric tons in 2012 from 12,000 tons this year. Nickel traded at $22,283 per metric ton as of 16:46 on LME. The metal dropped 10 percent this year and analysts think that it may fall by another 10 percent to $20,000 per ton.

Nickel reached its highest level in almost 9 months today as the markets reacted the rising demand news and also to the better overall fundamental market conditions.

Nickel (a crucial component of the stainless steel production) marked a new long-term high level today — $26,505 per metric ton. It’s the highest level since April 27, 2010, when $27,090 price was recorded. The rising demand from China combined with the stagnating supply offers a good opportunity for the metal to go up.

International Nickel Study Group has released its report on nickel consumption yesterday, pointing out a 20 percent yearly growth in China. Steelmakers are also helping to drive the prices up as they prefer to hedge their nickel usage with the long futures contracts on the metal. Various ETFs see an opportunity for themselves here — they turn nickel into a successful investment asset.

Nickel rose from $25,627 to $26,232 per metric ton or 2.36 percent on the spot market as of 16:20 GMT today. Some market analysts forecast $27,500 per metric ton as a reasonable price in several weeks.

Crude oil rose today as a rally of global stock markets improved confidence in sustainability of the global economic recovery, increasing demand for fuel. The S&P 500 rose 1.4 percent and the Dow Jones Industrial Average gained 1.2 percent. Oil also gained after the dollar dropped, increasing attractiveness of commodities as an alternative investment. September delivery for crude oil gained $1.16 (1.5 percent) to $76.40 per barrel by 11:23 on NYMEX.

Nickel prices fell on outlook that demand for stainless steel, the main source of consumption for the metal, would weaken. Demand from China, the largest consumer, will stay at 377,000 tons this year. Global nickel consumption will slow to 8.4 percent in this quarter, down by almost half from the previous quarter. Nickel spot price closed yesterday at $21,479 on LME. Prices may reach $17,030, the lowest level since February, before rebounding.

Nickel will slid 8 percent by the end of this year as demand declines. Prices may fall to $16,000 per metric ton in the first half of 2010 before rising in the second half as demand from the steel industry increases, yet supply will remain greater then demand in the next year. Three-month delivery for nickel slid 5.9 percent to $16,325 per ton at 7:31 on LME.

Wheat went up on outlooks that larger share of the U.S. grain harvest will be used as livestock feed after the corn price rose. Approximately 190 million tons of the grain will be used as feed for animals in the year ending on May 31st. This figure may increase as corn futures rise, thus increasing appeal of wheat as a feed source. March futures for wheat delivery went up $0.0575 (1 percent) to $5.58 per bushel by 10:27 on the Chicago Board of Trade.

Copper advanced as the dollar fell, boosting appeal of the metal as an inflation hedge. Inventories monitored by LME increased for the ninth straight session, suggesting that demand may fall. March futures for copper delivery advanced $.017 (0.6 percent) to $2.99 per pound as of 12:05 NYMEX.

Global miner Rio Tinto expects 2009 to be a rough year in terms of both prices and volumes for key commodities, the firm’s chief economist said on Wednesday.
Vivek Tulpule, speaking to Reuters on the sidelines of a conference, said a pick-up was possible in 2010, though people should not be blind to the risk of a prolonged slowdown.
Rio Tinto’s major commodities are iron ore, aluminium and copper.
“2009 will be a very rough year for both prices and volumes and probably also for construction. A lot of people I talk to in the mining industry are suffering a crisis of confidence, they are putting a lot of projects on hold,” Mr Tulpule said.
“Our view is that it will be a slow year or two.”
Copper, zinc, nickel and other industrial staples have lost 50 per cent or more in value since last year’s collapse in commodities markets.
For iron ore, analysts predict benchmark prices could contract by as much as 60 per cent this year due to sharp drops in orders from steel mills.
Mr Tulpule said benefits flowing from China’s giant economic stimulus package, largely directed at infrastructure, were likely to show up midway through the year.
“It will take to time to offset the negative impact of a downturn in exports and construction, those areas have slowed very fast,” Mr Tulpule said.
He said the collapse in commodities flowed from two “crunches”: the global credit crunch and a crunch in China that had been induced by its attempts to slow the economy last year because of concerns it was overheating.
“The effect that had was way beyond their own expectations and certainly beyond the expectations of anyone else,” Mr Tupule said.
“That deceleration had a profound effect on our markets as when growth decelerates inventories build up, and when you’ve got lots of inventory you suddenly decide not to build things and then you don’t need to buy half as much copper and aluminium and iron ore.”

UBS has slashed its 2009 commodity prices forecasts by an average of 37%, in line with cutting expectations for global growth to slow to 1.3% next year, from an earlier forecast of 2.2%.
That prompted considerable cuts to commodity forecasts for 2009 and 2010, with copper expected to trade at an average of US$1.30 a pound (US$2,865 a metric ton) compared with a current price of US$1.90/lb. Oil is expected to average US$60 a barrel in 2009, with iron ore facing a 40% price decline.
“We expect that base metals prices are likely to dip meaningfully below marginal costs in 2009, given the extent to which demand is likely to contract,” UBS said in a client note.
The contraction in credit and finance is unlikely to ease in the near term, UBS said. It expects the impact to continue to reverberate for the next one to two years, capping global growth and resulting in soft demand for commodities.
UBS also trimmed long-term price forecasts for base metals, cutting copper to US$1.50/lb, down 14%, aluminum to US$1.10/lb, down 12%, nickel to US$7.00/lb, down 18% and zinc to 65 cents/lb, down 19% on its previous estimate.
Only gold remained relatively unscathed, even though the systemic risk that supported gold through the credit crisis up until now has somewhat been alleviated by action from central banks.
But those risks haven’t vanished, meaning gold and gold equities will remain of interest to investors, UBS said.
UBS expects gold prices to average US$825 a troy ounce next year, down 15% on the previous forecast.
Bulk commodities, the long-standing preferred picks among analysts, won’t escape downside pressure, with huge production cutbacks among steel producers lowering demand for iron ore and coking coal.
“While the large (iron ore) suppliers are likely to cut back on production in order to mitigate some of the loss in demand, we expect that they will need to cut pricing, effectively giving up the price increase achieved in 2008,” said UBS, expecting next year’s contract price to fall 40%.
Coking coal contract prices will likely fall to US$180/ton, down from US$300/ton this year.

Commodity prices have fallen sharply lately, but don’t count on a market rout.
China, the world’s biggest source of new resource demand, is still primed to swallow massive helpings of iron ore, coal, oil and other raw materials after the end of the Olympics. And supplies of many commodities — including copper — remain tight, despite a slowing world economy.
The most likely outcome for now, analysts say, is that commodity prices will settle at levels below their record levels of earlier in 2008, but still dramatically higher than a few years ago.
For natural-resource companies, that outcome presents a mixed bag. Commodity prices should remain high enough for companies to continue posting very big profits.
But resources companies also face higher costs than a year or two ago, so even if commodity prices level out, the first half of 2008 could prove to be a high-water mark both for earnings and for share prices.
Highlighting the risks, on Tuesday Anglo-Swiss miner Xstrata said it was temporarily shutting down a nickel-mining operation in the Dominican Republic because of high energy costs and lower nickel prices. Nickel prices are currently down about 65 per cent from record highs in May 2007.
More recently, oil has fallen about 20 per cent, copper 15 per cent, and wheat more than 30 per cent from peaks earlier this year. There have been similar drops in tin, zinc, palm oil and other commodities.
In part, the drops reflect a slowing global economy. The US, Europe and Japan are flirting with recession, and China’s gross-domestic-product growth, while still strong, is expected to ease to around 10 per cent or less this year, compared with 11.9 per cent in 2007.
The declines also reflect a change in sentiment among investors who fear a much sharper slowdown in China after the conclusion of this year’s Olympic Games in Beijing. Their worry is that China’s economy expanded faster than normal before the Games, with big investments in stadiums, roads and other infrastructure, and now will slow significantly without that extra stimulus.
But many analysts think those fears are overdone.
“The economy is clearly slowing this year, but I think it’s a mild slowdown,” says Andy Rothman, a China analyst at CLSA, a Hong Kong-based investment bank. The economy is “still fundamentally healthy, and over the medium term, certainly housing and infrastructure and urbanisation — the drivers of growth for commodities — are still there”.
In a report released in June, analysts at Goldman Sachs reviewed the economic performance of the last 10 Olympics hosts and found that many did, in fact, experience post-Games busts. But the places that suffered significant slowdowns tended to have economies that were dominated by their host cities, leaving them more vulnerable once the Games ended and the tents moved on. Countries with other big sources of economic activity often did well.
That seems to be the more likely outcome for China. BCA Research, a Canadian investment-research outfit, estimates that Olympics-related capital spending totalled $US43 billion ($49.3 billion), a large sum, to be sure, but only a tiny portion of the country’s $US3.6 trillion economy. Beijing accounts for less than 2 per cent of China’s fixed-asset investment. Most of the industrialisation — and hence, China’s resources demand — occurs elsewhere.
Some analysts reckon China’s growth could even accelerate later this year once the Games end. That is because China closed some factories and businesses and suspended some construction before the athletes arrived to prevent smog and congestion, and will restart them later. UBS estimates the facilities affected by shutdowns account for about 1–2 per cent of China’s industrial production.
Either way, the interruption will likely result in volatility in China’s orders for raw materials, making it difficult for investors to ascertain the country’s true underlying demand for some time to come.
If China’s economy does slow more than expected, it would more likely come from external problems than from a post-Olympics hangover. China relies on demand from the US and Europe to keep its massive manufacturing sector humming.
But if overseas demand fades further, China is expected to unleash more spending on public-works projects, analysts say, exactly the kind of investment that requires concrete, steel, and other commodity-intensive products. Already, government spending on infrastructure rose 42 per cent in the first half of the year compared with the same period in 2007, CLSA says, a significant increase from a year earlier when it grew 19 per cent.
Investors shouldn’t expect a repeat of the record-setting run that sent oil to $US145 a barrel in July, though, analysts say. Many believe commodity prices were kicked higher then by speculators who later exited the market, in part because of a strengthening in the US dollar, which is often associated with weaker commodity prices.

The U.S. Mint plans to use less copper and nickel, but more zinc, as it ramps up penny production and cuts back on nickels, dimes, quarters and dollar coins, an agency spokeswoman said on Friday.
The Mint’s zinc needs will increase by approximately 2.2 million pounds (1 million kg), while its copper use will decline by 6.6 million pounds (3 million kg) and its nickel use will fall by 660,000 pounds (300,000 kg) in the 2009 budget year, which begins this Oct. 1, the spokeswoman told Reuters.
The agency said its metal needs reflect a shift in its product mix of coins based on demand, not higher metal prices.
The Mint plans to make more pennies due to new commemorative designs of President Abraham Lincoln on the coin. The penny is made from 97.5 percent zinc and the rest is a copper coating.
There will be less production of nickels, dimes, quarters and dollar coins that are made from copper and nickel.
The Mint is expected to produce 15.377 billion coins in the 2009 budget year, down from 15.425 billion coins in the current spending year.