COLUMN-Nickel, an old-fashioned story of boom and bust by Andy Home (Reuters – March 1, 2013)

http://uk.reuters.com/

(Andy Home is a Reuters columnist. The opinions expressed are his own)

LONDON, March 1 (Reuters) – Remember the commodities super-cycle?

That wonderful all-embracing bull narrative of structural step-change in commodities demand coupled with “stronger for longer” pricing? It was good while it lasted.

But as mining companies write down the mega investments predicated on that “stronger for longer” bit and shareholder pressure for returns rather than volumes forces a mass changing of the guard in the sector, the super-cycle seems set to go the way of other deflated grand ideas. File between dot-com revolution and great moderation.

Yet, it was always a problematic construct. Consider the example of nickel.Structural step-change in demand led by China? Tick.

Chinese production of stainless steel, the largest component of nickel usage, boomed by 27-28 percent per year over 2009-2010, according to figures from the International Stainless Steel Forum.

Stronger for longer pricing? Nope. Nickel prices peaked in 2007 and have never looked close to reaching those lofty heights again.

Rather than being swept up in some broader super-cycle, nickel is an old-fashioned commodity story of boom and bust.

It is one which has relevance in the new age of austerity in the mining sector.

THEN AND NOW

The London Metal Exchange (LME) price for three-month nickel peaked at $50,800 per tonne in May 2007, at which stage it had risen by over $17,000 since the start of that year and by over $30,000 since May 2006.

Stocks of nickel registered with the LME touched a low point of 2,982 tonnes in February 2007. Liquidity was so poor that the exchange temporarily altered its lending guidance in June that year, a move that precipitated a sell-off as spectacular as the preceding rally.

Fast forward six years and the nickel price is now floundering around the $16,500 level.

LME stocks stand at 159,552 tonnes with more metal arriving daily, putting the February 2010 all-time high of 166,476 tonnes within spitting distance.

True, the scale of current increase in exchange stocks may reflect more aggressive behaviour by warehouse operators keen to incentivise surplus metal into their sheds.

For the rest of this article, please go to the Reuters website: http://uk.finance.yahoo.com/news/column-nickel-old-fashioned-story-144605718.html

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