September/October 1991
Inco’s executive vice president discusses the market fundamentals affecting the nickel industry, predicting a balanced scenario for the metal in 1991 and 1992.
By Si Wakesberg
Si Wakesberg is New York bureau chief for Scrap Processing and Recycling.
The nickel industry has weathered the recession remarkably well, asserts Peter Salathiel, executive vice president of International Nickel Co. (Inco) (Toronto). Looking at the market from a historical point of view, he notes it has been "relatively stable," moving within a $2.75-to$4.25-per-pound range. Nickel has been able to maintain its stability while other metals have declined because, "unlike 1981-1982, capital spending has remained positive and has continued worldwide," Salathiel notes, pointing out that Japan--a principal nickel consumer--has yet to feel the recession.
Balancing Supply and Demand
Demand for nickel has been surprisingly strong, Salathiel says, though overall consumption has declined in recent years. That decline can be traced to 1987 and 1988, when consumption reached 1.5 billion pounds and approximately 100 million pounds of obsolete scrap were made available to meet the demand. "That's all gone," Salathiel notes, "so while consumption is still good, you have to take into account that overall consumption is down by deducting that 100 million pounds of obsolete scrap." But nickel demand is driven by capital goods, and with capital spending still occurring, demand has held up, he says.
As for nickel availability, "there's no oversupply," he emphasizes, noting that nickel producers have been operating at capacity. Of course, there is always the tantalizing question of Soviet nickel. The Soviet Union is said to produce 600 million pounds of nickel annually, a third of which it ships to the West. The problem is not only whether the Soviets will ship more next year, but also how much Soviet nickel has been bought and is being held by merchant-brokers. While Salathiel believes that more Soviet nickel will be making its way to the United States, "it really doesn't make much of a difference" from a world view, he says. "The tonnage that comes to the United States will have been diverted from shipments to Europe. It won't be additional metal.”
Salathiel says that Ivor Kirman, Inco Europe Ltd.'s (London) marketing director, who recently spoke at the Bureau International de la Recuperation (Brussels, Belgium) convention in Monte Carlo, aptly characterized nickel's supply-and-demand situation when he said, "Forecasts all overestimated supply and underestimated demand. ... The cumulative effect of these errors was to turn a consensus forecast of significant oversupply into a reality of significant undersupply.”
Nickel Stocks Low, Stainless Market Uncertain
"Nickel stocks are currently minimal, with LME [London Metal Exchange] metal being particularly low," Salathiel notes. Producer inventories, while also low, might rise a bit during the vacation period, he says. (Total inventories--producer, consumer, and LME--were about 187.4 million pounds in June, according to PaineWebber [New York City].) Salathiel stresses that "there's no sign of any imminent increase in nickel supplies."
The Inco executive also points out that scrap supplies are definitely tighter, in large part due to the depletion of the obsolete scrap reserve in the late 1980s. In addition, heavy shipments to Korea and other Asian buyers in the past two years have tightened the scrap market, he notes. (In the first four months of 1991, approximately 150.0 million pounds of stainless steel scrap were exported from the United States, up about 15.4 million pounds over the same period in 1990. Overall in 1990, 513.6 million pounds of stainless scrap were exported from the United States.)
Looking at nickel's major customer, stainless steel, Salathiel says that the level of nickel production is a fundamental concern for stainless producers, noting that demand for stainless steel was still quite good during the first part of the year. But with the stainless industry now feeling the pinch of the recession, certain questions arise: Is there too much production? Are there excess stocks? If so, how much? Will European producers decide to cut output? Stainless consumers indicate that their margins have narrowed, putting them in a squeeze, Salathiel says. "I can understand that stainless producers find it difficult to pay $4 for nickel while selling at their present stainless steel price levels. But if nickel prices fall, then nickel producers will also be in a squeeze," he observes.
Salathiel emphasizes Japan's major role in the world stainless steel industry as a principal consumer of stainless and, therefore, nickel. "We'll probably know in late August what the Japanese intend to do about fourth-quarter production," he says. The current Japanese stainless outlook is mixed and there's been some inventory buildup, he asserts, "but we're optimistic about Japan's economic future."
Price Rise in Nickel’s Future?
Salathiel observes that the second quarter of 1991 was similar to the first quarter, noting that "nickel, which was a bit weaker in the United States, also weakened in Europe by the end of the first quarter." Japan, however, still appeared to be going strong. Supply and demand will likely end up in balance for the entire year, he says, and the same will be true for 1992 since "there do not seem to be any significant extra units coming on-stream." There might be a "modest" capacity increase, he admits, but it won't affect the market "because there's just no excess capacity."
If the recession bites deeper, will nickel producers have to cut production? Salathiel responds cautiously: "Possibly--high-cost producers might have difficulty maintaining production at below the $3.50-per-pound level."
For the second half of 1991, Salathiel foresees some supply uncertainties caused by existing labor problems and concerns about Soviet nickel shipments. "But I do not anticipate any significant increase in supply this year or early next year," he states.
On the demand side, Salathiel is optimistic. "At some point, stainless steel producers will have to step up their production levels quite sharply and will require a considerable tonnage of nickel," he predicts. "When this occurs," Salathiel says, "it will lead to pressure for an increase in the price of nickel."•
Inco’s executive vice president discusses the market fundamentals affecting the nickel industry, predicting a balanced scenario for the metal in 1991 and 1992.