Nickel Surplus May Jump to Most in Four Years on Slow Demand

Nov. 16 -- A global nickel surplus may soar in 2012 to the highest in four years as Europe’s debt crisis and a sluggish U.S. economy cuts demand, said Japan’s top producer.

Supply will likely exceed demand by 54,000 metric tons in 2012, the biggest surplus since 2008, said Toru Higo, Sumitomo Metal Mining Co.’s general manager of nickel sales and raw materials. Demand outstripped supply by 63,000 tons last year, the first deficit since 2006, before moving to a surplus of 11,000 tons this year, Higo said.

Prices of the metal, used for corrosion resistance in stainless steel, have fallen 25 percent this year, making it the worst performing base metal on the London Metal Exchange. The global surplus will increase to 70,000 tons in 2012 from 30,000 tons in 2011, according to the International Nickel Study Group. Barclays Capital expects a surplus next year, analyst Gayle Berry said on Nov. 11.

“Demand growth may slow following Europe’s debt crisis and a slowing U.S. economy,” Higo said in an interview on Nov. 11. This year’s surplus forecast was revised down from an earlier estimate of 20,000 tons in July because of delays and maintenance at major producers this year.

Output from Sherritt International Corp. (S)’s Ambatovy mine in Madagascar, Vale SA (VALE5)’s Goro mine in New Caledonia and Onca Puma mine in Brazil as well as its Copper Cliff furnace in Canada, may increase next year, he said.

‘Perfect Substitute’
World stainless-steel output may increase to 34.6 million tons in 2012 from 32.8 million tons in 2011, Higo said. Output by China, the world’s biggest producer, is expected to rise to 14.4 million tons from 13 million tons, as the country will keep driving global consumption growth next year, he said.

“Production costs will largely determine nickel’s price range for the foreseeable future,” Barclays’ Berry said. “Relative nickel pig iron and refined nickel price levels will determine the composition of Chinese nickel needs now that nickel pig iron is a perfect substitute for refined nickel in a number of applications.” Pig iron is a substitute made from low-grade ore from Indonesia and the Philippines.

China’s output may grow to 405,000 tons in 2012, including pig iron, from 385,000 tons in 2011, while demand will likely rise to 700,000 tons from 640,000 tons, he said.

Nickel will average $23,099 a ton in 2011 and $18,125 in 2012, Michael Widmer, head of metals research at Bank of America Merrill Lynch in London, said in a weekly note on Oct. 28.

Toyota, Canon
Three-month delivery metal gained 2.1 percent to $18,460 a ton on the LME at 3:06 p.m. in Tokyo. The metal reached $29,425 a ton in February, the highest level since April 2008. LME stockpiles totaled 84,180 tons as of Nov. 14 after touching 83,160 tons on Nov. 9, the lowest level since January 2009.

In Japan, Asia’s second-largest consumer, the yen’s strength and Thailand’s worst floods in almost 70 years may curb demand from the auto and electronics parts industries, Higo said.

Demand may gain 14 percent to 151,100 tons next year, while output will likely rise 11.8 percent to 171,000 tons after this year’s earthquake and tsunami curbed production, Higo said. Exports are expected to climb 23 percent to 82,500 tons, he said.

Japan’s exporters, including Toyota Motor Co., Hitachi Ltd. (6501) and Canon Inc. (7751), built up factories in Thailand in the past three decades to cut labor costs and stem the erosion of profit caused by the yen’s appreciation against the dollar. The yen traded at 77.13 per dollar today after touching 75.36 on Oct. 31.