Wednesday, May 23, 2007

Base Metals

May 23 (Bloomberg) -- Nickel fell for a second day in London on speculation rising stockpiles signal slowing usage as producers seek alternatives to the metal in stainless-steel manufacturing. Copper also dropped.

Nickel inventories monitored by the London Metal Exchange rose 1,446 metric tons, or 27 percent, to 6,834 tons, the exchange said today in a daily report, the biggest one-day gain since Sept. 11, 2003. ThyssenKrupp AG, the world's biggest stainless steelmaker, said yesterday that it may increase production of nickel-free stainless steel to reduce costs.

Nickel has more than doubled in the past 12 months as China overtook Japan to become the world's largest user because of its expanding stainless-steel industry. About two-thirds of nickel is used to produce stainless steel.

In response to the price increase, China is expanding production of so-called nickel pig iron, a cheaper alternative to refined nickel, using ore from the Philippines and New Caledonia, Thurtell said. Its increasing use will probably cause demand to decline further, he added.

The price of nickel may drop to $40,000 a ton in the coming month if LME inventories continue to increase, John Reade, a London-based analyst at UBS AG, said in an interview today.

Copper slipped $88, or 1.2 percent, to $7,173 a ton. Rising copper prices have ``triggered a buyers strike in China and surplus metal has ended in Shanghai Futures Exchange-registered warehouses over the past three weeks,'' Reade said in a report today.

China's copper imports rose 61 percent to 1.1 million metric tons from January to April from year-ago levels. SFE stockpiles are at their highest in three years, jumping 17 percent to 99,556 tons in the week to May 18.

LME-tracked copper inventories fell for a fourth day by 0.6 percent to 137,575 tons today. That's the lowest since Nov. 1.

Among other LME-traded metals, lead slid $60, or 2.8 percent, to $2,090 a ton after trading at a record $2,216 a ton yesterday. Aluminum dropped $33 to $2,822 a ton, zinc fell $45 to $3,665 and tin lost $100 to $13,850.
If China has indeed found a way to reduce their nickel usage we may very well see a fall in prices. It won't likely last more than a year before demand pops back up, but by the time it starts to rally again China will be finishing up construction for the Olympics which will mean lower demand for a time. Also China already has rules in place to stop factories as far as 350 miles away from the site of the Olympics in order to keep the air clean for the event.

I don't forsee much correction in copper at this time. Quite simply there isn't anything to take its place. Aluminum is much cheaper but it is inferior and there is no where near enough of the stuff to replace any meaningful amount of copper. Unless China or India come up with some innovative way to replace common electrical wiring with some other metal, copper will continue to rise as the demand in those two countries continue to skyrocket.