Few can make money from nickel at today's prices
On Friday, the commodities team at South Africa's Standard Bank took an in-depth look at the state of the nickel market and it's not looking good at all.
Standard Bank analysts say nickel prices at around $13,900 a tonne, is "cutting deep into the cost curve" and that the "90th percentile producer’s cost is in the order of $16,000 a tonne."
LME inventories of the steelmaking raw material are also continuing to rise crossing the 200,000 tonne mark this week – double the stockpiles at the start of the year:
"At the same time, the LME open interest for nickel continues to rise and remains near record levels. The rising open interest, combined with falling prices suggest short positions remain well entrenched in the futures market for nickel.
"Following the better-than-expected manufacturing data in China and Europe earlier this week, base metals such as copper, zinc and aluminium rallied strongly on what we believed was short-covering. Nickel, however, largely failed to follow suit, perhaps suggesting that the holders of the short positions in nickel may be willing to hold on to these positions for longer before they cover.
"From a pure demand/supply balance perspective, it does appear as if things for nickel is unlikely to turnaround anytime soon and may make the shorts more sticky. We forecast a surplus market for nickel of 68K mt, 73K mt and 65K mt in 2013, 2014 and 2015 respectively. In terms of days consumption, we would expect inventory to rise from a current 120 days, to 148 days by 2015.
"If this is indeed the case it is hard to make a case for the nickel price to move well above the marginal cost producer, which we put currently around $17,000mt."
Image is of Hoba Meteorite in Namibia which is made up of about 16% nickel.