Slowdown in China Dents Nickel – by Rhiannon Hoyle and Clementine Wallop (Wall Street Journal – July 10, 2013)

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Metal’s Price Reaches Four-Year Low as Demand Wanes and Output Increases

Nickel prices fell to a four-year low, in the latest fallout from slowing economic growth in China, the metal’s biggest user. China’s growing pains have translated into less demand for nickel, which is mixed with iron ore to give stainless steel its rustproof property in everything from table forks to kitchen sinks to skyscrapers.

While the fortunes of many industrial metals are tied to the world’s fastest-expanding major economy, nickel is particularly vulnerable, investors and analysts said. China accounts for more of the world demand for nickel than it does for other metals. In 2012, the country absorbed 46% of global nickel output, including both recycled and mined nickel, according to the International Nickel Study Group, an industry organization. By comparison, China used about 40% of the world’s copper, according to Barclays PLC. BARC.LN +0.38%

Nickel prices are bearing the brunt of a steep decline in metals markets this year. Nickel futures fell as low as $13,205 a metric ton Tuesday on the London Metal Exchange, its lowest price since May 2009, and ended the day down 0.8%, at $13,325. Prices have dropped 22% since the start of the year. In the same period, an index of the metals traded on the LME, which excludes steel, is down 15%. Those are the largest declines for any six-month period since the second half of 2011, when worries about the debt crisis in Europe depressed demand prospects for industrial metals.

Investors expect the dismal price performance to continue in the $16 billion futures market, amid signs of weakness in the sectors of China’s economy that are heavy users of nickel. Manufacturing is declining in China, with one gauge showing contraction for the past two months. In the first quarter, new property construction fell 2.7% from a year ago in terms of floor area.

“Prices are going to bump along the bottom of this trough until the end of the year,” said Mark Pervan, head of commodity research for Australia & New Zealand Banking Group Ltd. ANZ.AU -0.07% “I don’t see a catalyst for a pickup in demand out of China over the next six months.”

China’s imports of a raw form of nickel in May fell to 11,112 metric tons, down 9.8% from a year ago, according to the China Customs Statistics Information Center. In the first quarter, China’s production of stainless steel fell 2% from the fourth quarter of 2012, according to the latest data from the International Stainless Steel Forum, an industry group.

Also weighing on prices is an increase in nickel output. Production from mines is set to outstrip global demand for the second year in a row, according to the International Nickel Study Group. The group forecasts that output will reach 1.86 million tons this year, compared with demand of 1.77 million tons.

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