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THE NEWS AGENCY "KAZAKHSTAN TODAY": WORLD NICKEL MARKET STUDY NOVEMBER, 2003

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14:15 14.11.2003
text: "Kazakhstan Today"
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World prices for nickel show an upward tendency. Brokers and traders say that in the market of metals undergo a "nickel race " due to the brisk demand of the Asian steelmakers that increased the world nickel prices to a record level for the recent 13 years. If the monthly average price of actual nickel on LME was $9968 in September, the October price has increased up to $11051, and for the first decade of November - up to $12002. The metal reserves are still remain on the level of 33 thousand tons. And at the same time a backwardation is observed at the London metals exchange that also maintains the high prices. This situation is characterized by exchange prices excess for cash metal over the prices for the goods with three month' delivery. The least has a price of $11990 per ton.

This year is unusual for nickel market as the prices for nickel has broken the limit of $10000 per ton, comparing with the price of $6500 per ton in November of the previous year.

In the last quarter of the previous year there prices were under stagnation, but from the beginning of a new year the market has never remained the same. The brisk demand of China could be mentioned as one of the objective reasons.

Nickel consumption by the new, already existing and developing manufactures in Finland, USA and Belgium resulted in the situation when even the release of 60 thousand tons of "Norilsk Nickel " reserves was consumed by the market and price "race" remained stable.

To some extent a 13 weeks strike in a factory of the Canadian company Inco was the reason of that "race". During this period the exchange reserves have sharply decreased.

But even after the dispute had been settled and "Norilsk nickel " reserves had been released to the market its fundamental bases have remained in force and continue to maintain the prices.

It is most likely that in a medium-term forecast the high prices will remain as there is still a high demand and the possibility of significant volumes of nickel release to the market is low due to the absence of new "nickel" enterprises.

Irrespectively of the main reason of such growth (financial speculation, reduction of deliveries to the market or other factors) according to the estimation of MEPS agency experts the price for metal will hardly fall below $10000 per ton in the nearest future .

At least, the broker company Man Financial working at LME, determines the support of $10530 and resistance of $12100 per ton within the short period in its report dated November 11.

The present situation in the market has certain effects for the suppliers of stainless steel.

The companies which have the special system of adjustment in case of alloy prices increasing were ahead of those who ought to negotiate the price with the consumers when nickel prices go up.

МEPS believes, that some large Asian manufacturers have to struggle for profit even when the demand for stainless steel is high as the prices for the raw material is growing.

It is now under the discussion that how the high prices for metal can change the brisk demand for stainless steel down.

Many ultimate consumers have already adjusted to the floating prices, but nickel now is so expensive, that they are forced to search for alternative options, buying the grades with low content of nickel.

Some stainless steel' manufacturers are concerned about the present situation and started new researches to develop an alternative manufacture of materials with the low content of nickel.

Experts are researching the carbon steel alloys with the high content of chrome and manganese as a substitution for the grades which contain nickel.

If these efforts will have a success the medium-term forecast period will be characterized by nickel containing grades loosing their dominant positions on a market.

However it will not solve a problem completely as demand for stainless steel grows up to 5-6 % each year.

One of the reasons of a sharp rise of the nickel prices are fears about the long-term reduction of deliveries of this metal.

As a matter of fact it looks as three projects of cheaper and fast extraction of nickel from ore using so-called method of acid leaching under high pressure, work under that method began in Australia at the end of 1990s.

But yet they did not lead to reduction of prime cost of nickel extraction, nor to increase of productivity of this process.

Failures of these projects which would allow to increase considerably manufacture of nickel, have disappointed manufacturers who were going to open new production on their own deposits.

As the increase of manufacture was planned by consumers of nickel, refusal of these projects can lead to excess of demand over the offer.

So, the same Canadian company Inco has declared, that two its large projects, one in Labrador and the second in New Caledonia, can begin manufacture of nickel not earlier than in 2006. Besides Inco has suspended construction of a new factory in Goro last December as the cost of this project has grown up 40% to $2,1 billion and to continue the construction there is a need of financial help of the French government but the negotiations did not give any results.

Australian analytics recommend to operate all nickel deposits.

New nickel projects have to be invested

to satisfy growing world demand for this metal and to reduce the price, - declared the chairman of Australian CSA during the conference on metals and concentrates which took place on the 5th of November, 2003 in Melbourne.

Because of growing demand for nickel especial from the part of Chinese steel industry the world market requires its additional deliveries.

Taking into account, that the developing of a new nickel deposit takes from 5 to 8 years, CSA consider, that in 2004-2006 for satisfaction of demand it is necessary to put into operation all deposits of nickel which are at the stage of development.

The main sources of increasing of nickel market deliveries during this period should become Canadian sulphidic copper nickel deposit Voicy-Bay, which will provide 20 thousand tons of nickel in 2006 , and also New Caledonian deposits of French Eramet Group where by 2006-2007 it is planned to increase annual release of metal up to 13 thousands.

However, in CSA estimation, it would be not enough to decrease world prices for nickel to a comprehensible level and it is necessary to invest other nickel projects.

The representative of the world second nickel manufacturer, Canadian Inco, Steve Mitchel considers, that price "rally" is connected with growth of demand for nickel in China.

He says that this market has a tendency to grow up to 28 % each year, two thirds increasing of the world demand falls on China. We plan to increase manufacture of nickel up 40 % approximately to 294 thousand, but only by 2006. "

Sudden increase of nickel prices made the manufacturers panic. First of all it is based on the use of the alternative to the usual stainless steel can lower demand for nickel, and also plunge nickel branch into a long depression.

Some experts consider, that in such case the manufacturers of a stainless steel will reduce the content of nickel in their products that will allow to lower the nickel prices.

Universal increase of demand for nickel is explained also by sharp growth of new number of factories which manufacture the stainless steel all over the world.

By experts estimation, capacities of factories which manufacture this kind of steel have grown in 2002-2003 up to three million tons.

The brisk demand is basically supported by Asia, especially China which became the world's largest consumer of stainless steel, outrun USA and Japan since 2001.

China satisfies their needs for this steel on two third due to import.

President Inco has recently declared, that he expects the growth of consumption of stainless steel in China up to 10%-20 % each year at least before 2006.

At the same time the majority of analysts expect, that in the ensuing months the nickel and stainless steel markets both expect recessions and rises. The period of consolidation should come even in China.

Some analytics, however, do not see any opportunities for growth of the stainless steel market in long-term prospect, but the majority of them believe that the situation for the manufacturers will improve in 2004.

Their forecasts are based on a low level of reserves and growth of demand of construction and motor companies while the recovery of American and European economy in the next year.

If these forecasts will be justified, by the next summer the nickel and stainless steel prices will have only one tendency - increase.