An employee works in a ferronickel smelter owned by state miner Aneka Tambang in the Pomala district in Indonesia's South Sulawesi province. The country accounts for roughly 7% of the world's total nickel mine output. Picture:
REUTERS reported that nickel prices may see a short-term lift over the next several months due to a seasonal rise in demand for stainless steel, but next year's outlook is burdened by another market surplus.
This may persist into early next year, but prices will soon be overwhelmed by output from new mines gearing up and a surge in Chinese pig iron output fuelled by cheap Asian ore.
Mr Nic Brown head of commodities research at Natixis in London said that "There could be a little bit of seasonal pick up, but I struggle to see how nickel prices can improve significantly next year."
So far this year, three month nickel is the worst performer of six LME base metals, dropping about 8%, burdened by high inventories and a market surplus. It has lost two thirds of its value since hitting a peak of USD 51800 a tonne in May 2007.
But over the past two weeks, nickel has been the strongest, outperforming its peers by more than 6%.
Traders said that the current strength is mainly due to some investors buying back short positions, but analyst Daniel Brebner at Deutsche Bank in London said seasonal factors in stainless steel may also bolster prices.
Over the past four years, stainless-steel prices in Europe have risen around the beginning of the year due to seasonal buying and this has corresponded to higher nickel prices in December and January, he said.
According to the International Nickel Study Group, about 65% of nickel is used as an alloy in stainless-steel production to make it resistant to corrosion.
INSG said that the global nickel market was in surplus by 59800 tons in the first nine months of the year and Brown at Natixis forecasts a surplus of 44000 tonnes this year, rising to 66000 tonnes in 2013.