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US nickel supply glut keeps premiums under pressure
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Sunday, 01 Jul 2012

Reuters reported that US nickel premiums have fallen below 20 cents per lb for the first time in more than two years as an overhang of supply has slowed spot activity.

Market participants said that "In the higher volume arena, the bigger stainless mills are able to buy at the sub 20 cent level today. Producers have an overhang of material without a lot of spot business coming in to take any additional tonnages they might have."

Most participants pegged premiums for melting grade nickel in a range of 15 to 25 cents per pound, down from a first quarter range of 20 to 25 cents, while some small-lot spot deals were being quoted as high as 35 cents.

A second dealer said that "There are great economic uncertainties and people are not buying too much further out, but they still need metal and are buying it for prompt delivery."

Still, suppliers are said to have enough nickel on hand, and are more willing to move it in order to avoid getting caught long the metal.

The first physical dealer said that "If you're Vale or Xstrata or Norilsk Nickel, anything you have you're going to want to move because you know there's going to be a sufficient follow up of material coming through to replace what you're selling today."

The free flow of nickel this year is a far cry from 2010, when a year long work stoppage at two of Vale's Canadian operations tightened North American supply and powered premiums to records well above USD 1 per pound.

Sources said that but with Vale's Canadian operations back up and running at full capacity, the Rio de Janeiro based miner has remained aggressive in the spot market, undercutting trade offers and keeping a firm lid on premiums.

A European based dealer said that "It's only gotten worse this year because they've got Onca Puma on board, plus their various other grades from Asia, so there's a lot of units in the market."

Vale's Onca Puma project in Brazil has capacity to produce 52,000 tonnes per year of ferro nickel.

London Metal Exchange nickel inventories are up nearly 19% this year, another sign the market is well covered.

The European trader said that "The stainless mills have got their frame contracts and they don't need much additional, so we're not seeing a lot of spot inquiries. That's why the premiums are under pressure."

The stainless steel industry accounts for more than 60% of nickel demand.

Recent data from the World Steel Association showed that global steel production growth slowed in May 2012, with output expected to remain sluggish in the coming months as weak economic growth erodes demand.

Compounding the sluggish state of the US physical market, China has been buying less nickel this year. According to the latest official customs figures from China, imports of refined nickel totaled 48,720 tonnes in April 2012, down nearly 30% YoY.

Still, sources do not anticipate premiums falling much further, with some even expecting a pick up by late summer.

The first physical dealer said that "You're probably looking at a month to six weeks of more weakness in the market, but once you get to second half of August 2012, I would anticipate some better buying in the fall and premiums might actually move up a bit."

Source - Reuters


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