PanAust Wins Approval for Chinese Investment

LONDON, June 30 -- Robust demand for good quality stainless steel should sustain nickel prices towards the end of the year as consumer stocks will need to be replenished even if the global recession limps on.
&nbsp;&nbsp;&nbsp; Prices of the steel-making ingredient valued for its anti-corrosive properties fell to 5-year lows below $10,000 a tonne last October after the collapse of Lehman Brothers raised the spectre of global recession and slumping demand.
&nbsp;&nbsp;&nbsp; Nickel on the London Metal Exchange is currently trading at around $15,800 a tonne.
&nbsp;&nbsp;&nbsp; Stainless steel producers, accounting for two thirds of nickel demand, have been using stocks or producing lower quality material ever since prices hit record highs above $50,000 a tonne in May 2007.
&nbsp;&nbsp;&nbsp; 'Extreme prices scared people away from high quality steel,' said Joel Crane, analyst at Deutsche Bank. 'Our house view is that global economic recovery is a 2010 story ... the restocking phase will begin a few months prior to that.'
&nbsp;&nbsp;&nbsp; Backing up expectations of a recovery at the end of the year was news that Finnish stainless steel maker Outokumpu recently said it would raise output capacity due to stronger orders in the fourth quarter.
&nbsp;&nbsp;&nbsp; Tentative signs of recovery can be seen in stocks of nickel in LME warehouses, which at around 109,000 tonnes are down from a 14-year high above 114,000 tonnes at the end of April.
&nbsp;&nbsp;&nbsp; Also a boost for the market is a shortage of stainless steel scrap, a cheap source of nickel, which has dropped sharply this year thanks to the near total collapse in stainless production.
&nbsp;&nbsp;&nbsp; The shortage of scrap means mills looking to raise output will have little choice but to start buying nickel again.
&nbsp;&nbsp;&nbsp; 'We see an improvement by the fourth quarter in line with an expected improvement in underlying demand and also the beginnings of restocking by stainless mills,' said Gayle Berry, analyst at Barclays Capital.
&nbsp;&nbsp;&nbsp; SURPLUS ESTIMATES 
&nbsp;&nbsp;&nbsp; When stainless steel output does recover, it will be from extremely low levels. According to the International Stainless Steel Forum, first quarter global output of 4.832 million tonnes was the lowest quarterly number since 2000.
&nbsp;&nbsp;&nbsp; Even this figure was flattered by a rebound in China, the world's largest stainless producer, where output increased almost 24 percent from the depressed levels of Q4 2008.
&nbsp;&nbsp;&nbsp; Stainless production aside, output cuts from nickel miners also mean less material and potentially higher prices when consumers decide the time has come to buy.
'&nbsp;&nbsp;&nbsp; The global nickel market surplus is falling rapidly as a result of the 18-month campaign from producers to cut output in response to the collapse in global demand,' said Deutsche Bank in a recent note.
&nbsp;&nbsp;&nbsp; Analysts say about 20 percent of nickel capacity globally, in a market estimated to produce an annual 1.2 to 1.3 million tonnes, is currently idled.
&nbsp;&nbsp;&nbsp; All this has helped nickel prices gain some 50 percent since end-March and prompted downward revisions to surplus estimates.
&nbsp;&nbsp;&nbsp; The International Nickel Study Group expects the global nickel market will record a surplus of 80,000 tonnes this year from a 110,000 tonne surplus previously.
&nbsp;&nbsp;&nbsp; RESTOCKING STORY 
&nbsp;&nbsp;&nbsp; Cutbacks aside, there are positive demand signals from China, the world's largest nickel consumer. China has been eating up global nickel stocks this year as seen in recent import data.
&nbsp;&nbsp;&nbsp; 'We don't expect that strong level of Chinese import buying to continue,' Berry said.
&nbsp;&nbsp;&nbsp; Higher nickel prices have also sparked an increase in production of nickel pig-iron, a low quality substitute, in China, leading to fears of a potentially larger supply overhang.
&nbsp;&nbsp;&nbsp; It is possible however that for nickel, any increase in stainless production might be enough to sustain prices, irrespective of Chinese buying and pig-iron supply.
&nbsp;&nbsp;&nbsp; The fact that stainless stocks have plunged, shows consumption, albeit weak, is still higher than production. This cannot continue indefinitely, even in a recession.
&nbsp;&nbsp;&nbsp; 'Your economic view does not influence the restocking argument that much,' said JPMorgan analyst Michael Jansen. 'This year is a restocking story, it's the simple power of the business cycle, the low point in nickel has been seen for sure.'
&nbsp;&nbsp;&nbsp; (Source: Reuters)