Where Will Nickel Go Next?

March 30, 2010

Nickel's on a tear—but can the run continue? Or are lower prices inevitable?
  • Why nickel prices jumped in February
  • Can stainless steel demand recover?
  • The right ETFs and stocks to play nickel

 

Looking Short, Looking Long

I love a good supply/demand story, so when I see a textbook chart like this one for nickel, it pretty much makes my day:

 

Short-Term Nickel

 

Looking at nickel since the beginning of the year, we can see LME stockpiles rising, and prices, for the most part, falling—at least until the beginning of February. Then the story becomes a little curious: As LME stockpiles leveled out a bit, nickel's price skyrocketed. By the time LME stockpiles had begun to fall, nickel prices were already in such a huge climb that many industry followers were left scratching their heads, even as they bought nickel as fast as they could.

A recent Wall Street Journal article points to stockpile drawdowns by Stratton Metals Ltd., a private nickel dealer in London, as the catalyst for that large price jump in mid-February. And as the supply decrease coincided with the rise in prices, some analysts began to worry that nickel was getting tight, a fear that only served to further drive prices up.

Throughout the month of March, LME stockpiles have continued to drop. Still, we're nowhere near the levels seen this time two years ago, when the price of nickel was over $51,000 per metric ton. In fact, when you compare prices to LME stockpiles long term, you gain a bit more perspective:

 

Long-Term Nickel

 

As you can see, nickel supplies have been much tighter in the past; the last time nickel hit yesterday's closing price of $24,000/tonne, LME stockpiles were roughly one-quarter of what they are now.

So where does nickel go next? It all comes back to stainless steel.

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