Nickel May Rise 14% as Consumption Climbs, According to Societe Generale

Nickel may rise 14 percent in the fourth quarter as higher stainless-steel production in China drives a gain in usage, according to Societe Generale SA.

Nickel for immediate delivery will probably average $26,835 a metric ton in the next quarter, compared with the bank’s estimate of $23,500 for the current period, David Wilson, director of metals research at Societe Generale in London, said today by phone. China’s stainless-steel output probably will climb at least 25 percent this year, he said.

“Prices above $24,000 a ton by the end of September are quite likely,” Wilson said. Spot nickel slipped $5 to $21,875 at 1:21 p.m. on the London Metal Exchange, for a 19 percent advance in 2010.

Asian prices for stainless steel have gained 8.7 percent from June’s low, according to figures from Metal Bulletin on Bloomberg, and are up 20 percent this year. About two-thirds of all nickel is used to make the alloy. Manufacturers of stainless steel are seemingly “gearing up for higher production in China,” according to Wilson.

“Prices partly reflect rising nickel costs, but the key point is if there wasn’t consumption, it would be difficult to pass on any price rises,” he said.

Wilson also pointed to higher production of nickel in China, the world’s largest consumer, as signaling improved local demand. Output was 18,043 tons in July, up 1.4 percent from June and 25 percent higher than at the start of the year, he said, citing figures from the Chinese National Bureau of Statistics.

Usage in Europe

Chinese production of stainless steel probably will climb to more than 11 million tons this year from 8.8 million tons in 2009, according to Wilson.

European nickel consumption also will probably increase for the rest of the year as mills resume production after maintenance work, he said. China will use about 31 percent of the world’s nickel this year and Europe will consume about 25 percent, Barclays Capital estimated in a report on Aug. 13.

Spot nickel has averaged $21,014 a ton this year on the LME. Inventories tracked by the exchange have dropped 31 percent to 115,968 tons from this year’s peak on Feb. 8.

Nickel supply fell 19,000 tons short of demand in the first half of 2010, compared with a year-earlier, 22,800-ton surplus, the World Bureau of Metal Statistics said today.

To contact the reporter on this story: Anna Stablum in London at astablum@bloomberg.net