Nickel market seen in surplus until mid-2009

October 14, 2008: It is likely that the world nickel market would continue to be in surplus until the middle of 2009, opined an executive in the world's largest nickel producer OAO Norilsk Nickel.

According to a foreign news agency report the Deputy Director-General Viktor Sprogis said after that the market would return closer to balance. However he felt that it would take a some time for the demand to improve in the face of the present financial crisis.

"Where prices currently are, that surplus will vanish and (the market will) become more balanced," he said, stated the report. It would be worthwhile to note that prices of nickel on the London Metal Exchange have declined heavily recently and are at present nearly 75 percent less from their May 2007 high of $51,800 a ton at $12,800 per ton.

The report informed that the company is at present not planning any reduction in its production operations. However, Sprogis said it is likely that other companies would be forced to reduce output.

"Producers are in a difficult position. They are currently in discussion on what to do. They are discussing 2009 plans and the possibility of closures," he said. "We think we will be the last company to cut production," he added, stated the report.

He further added that a substantial amount of the material produced depends on prices which are above current levels and some operations require prices which are above $20,000 per ton. "If prices stay lower, we will see (output) cuts," Sprogis said stated the report.

While the low prices are likely to compel companies to curtail projects demand of stainless steel would react to a global slowdown and it is likely that it would require more than a few months for demand to recover.

"We assume certain stagnation and that we will face certain problems," Sprogis said. "It will take time - we are talking years, not months. Demand will recover, it is just a question of time." However a lot depends on economic and psychological sentiment of the markets, he said.

In the present situation the supply and demand fundamentals will be of importance priority, opined Norilsk economist David Humphreys. Sprogis added that the supply and demand fundamentals will make it more difficult to negotiate with customers.

"We do not expect this market to be easy for us to negotiate with our customers," he said. "There is reason to expect the amount delivered to customers long-term to be lower. Today, not everyone is willing to take long-term contracts."

Sprogis opined that customers are likely to go for short-term contracts, stated the report.

Source: Sourcing Insights Bureau