Nickel rides metal wave

ECONOMICS: Analyst believes global recession is ending, leading to rise in commodities prices

Posted By HAROLD CARMICHAEL THE SUDBURY STAR

Posted 3 hours ago

Nickel is on the way up, but it's a climb linked to what is happening with its metal cousins, such as copper, aluminum and zinc, says a nickel analyst based in Montreal.

"(Nickel) is fundamentally well-positioned," Terry Ortslan, of TSO & Associates, said Monday.

"If any of the metals has a convincing charge (in price), the other metals will follow. Most likely, it's going to be copper.

Nickel was selling in the US$11.31 a pound range on the London Metal Exchange yesterday.

The price is a huge improve-m

ent from mid-February, when the metal was going for about $9.15 a pound.

The LME's stockpile of nickel is on the way down. Sitting at 157,512 metric tonnes Thursday, it has dropped from a record 166,000-plus metric tonnes in early February.

Ortslan said the recent rise in price for nickel is the result of buying by nickel users to ensure they don't get caught short down the road.

"People are having a 'preemptive strike' in terms of buying the metal, which is the right thing to do," he said.

"It's all adding up. A couple of major (nickel) projects are still scrambling to get into production such as (Vale Inco's) Goro."

"The world economies have had their worst and are now having a breather," said Ortslan.

Nickel headed into the Easter break at a 22-month high after outperforming other key industrial metals with a 35% price rise for 2010 so far.

Some metal traders have attributed the surge to rising demand from stainless steel mills, which account for about 65% of nickel consumption.

Ortslan doesn't see the current nickel price going much higher, nor does he see shortages arising.

"I wouldn't say shortages, but market inventories will go down a bit due to supply constraints," he said. "Inventories are going to get lower and lower ... and they have."

Ortslan said rising world nickel prices could prompt Vale Inco to sweeten its nickel bonus terms in a revised offer of settlement to its striking production and maintenance workers in Greater Sudbury.

"To me, I think there's a lot of room to play with," he said.

Copper, meanwhile, was selling for US$3.57 a pound Thursday, up two cents from March 31 and up about 33 cents from mid- February. Zinc was selling for about US$1.07 on Thursday, up from 94 cents in mid-February.

Laurentian University economics professor David Robinson predicted the price of nickel would be going up in 2010. He said Monday world nickel prices will likely keep going up in the months ahead.

"If the world economy keeps going like this, we could see this even going into the $20s," he said. "I'd be a little surprised, but there's nothing logically keeping that from happening."

Robinson said if Vale Inco's Greater Sudbury operations returned to full production and were adding nickel to the world nickel supply, he would expect to see nickel prices come down a little.

As well, with nickel production in Greater Sudbury having a higher production cost, Vale Inco, selling nickel for $7 or $8 a pound, would not be making as much profit as the division would like, he said.

"We have been saying that taking Sudbury out of production wouldn't hurt them, but (production cost) becomes a non-factor when the price goes this high," said the professor.