Persistent shortages should push nickel higher

NEW ORLEANS, Apr 22 (Reuters) Expect nickel's price to rise beyond its current stratospheric level, as new supply due later this year will fail to satisfy a growing need for the metal in stainless steel, jet engines and hybrid cars, analysts said this week at ISRI's annual convention.

''For nickel, we're likely to see upside price risk for the next two quarters with some of the price pressures alleviated by the end of the year,'' Jason Schenker, economist at Wachovia Corp. told secondary metal market participants at the Institute of Scrap Recycling Industries' spring conference.

Schenker forecast a 2007 average benchmark London Metal Exchange nickel price of ,309 a tonne, slipping to a ,000 average in 2008 with the addition of new supply.

Meanwhile, he said he looks for shortages in the face of current robust demand to send second and third quarter averages to ,000, nearly twice 2006's per-tonne average of ,000.

LME nickel soared to an all-time peak of ,150 per tonne last week and closed Friday at ,700 per tonne.

New supply anticipated by year end or early 2008 will most likely be insufficient to stem new price gains, analysts said.

''Although we've seen some increase in supply, it's barely met the demand needs. We don't really see any new supply coming on line until the back end of this year and really the beginning of next year,'' said Schenker.

Seven large development projects are scheduled to add about 250,000 new tonnes of nickel a year by 2010, but mines set to have opened by now have been fraught with construction, environmental and other delays, Mo Ahmadzadeh, President of Mitsui Bussan Commodities (USA) Inc. told the same group.

''When we look forward to the next three years, we can't really see effectively any more than 200,000 (new) tonnes,'' he said. He added that nickel stocks at exchange warehouses have fallen to less than a day's worth of global consumption.

In the face of shortages, nickel is more in demand than ever, with rapacious stainless steel producers taking most.

World stainless steel production grew by 13.5 percent in 2006 to 28.1 million tonnes. Ahmadzadeh said that should increase by an average of five percent annually through 2009.

China, with a 45 percent increase to greater than 5 million tonnes of stainless steel last year, surpassed Japan as the world's top producer. It plans more capacity for 2007.

Skyrocketing nickel prices have impelled India and China to step up development of no-nickel or low-nickel stainless steel, said Vikram Kochar, vice president at Universal Metals Inc., a secondary stainless steel merchant.

While they have been used in many applications in those countries, he said the low nickel content makes the steel harder to work with and drives up manufacturing costs.

In addition, the lower-grade metal's surface appearance is less appealing and more corrosive, and many U.S. specifications require manufacturers to produce higher-grade steel.

Along with stainless steel, Schenker said nickel's use in the booming jet engine business, oil rig rebuilding and consumer appliances in new homes is growing.

He added that expensive gasoline should increase purchases of hybrid cars, which require about 150 pounds of nickel each.

Remembering Toyota's promise to eventually turn every car it makes into a hybrid, Schenker estimated about 500,000 tonnes of nickel would be needed every year.

''That's one-third of all the nickel produced. It's not going to happen. There's not enough supply. But that's not going to stop Toyota from trying,'' he said.

REUTERS SRS VP0725