Nickel – Bullish technically and fundamentally

China’s Nickel Demand Will Erode Supply Through 2010, Inco Says
March 29 (Bloomberg) — China’s demand for stainless steel will erode inventories of nickel faster than mines are able to boost supplies over the next five years, said an executive with Inco Ltd., the world’s second-largest nickel producer.

“The nickel market is facing ongoing shortages, strong demand and limited prospects for supply growth,” Brent Rochon, Inco’s assistant vice-president of marketing, said today at the Prudential Metals and Mining Conference in New York.

The price of nickel, used mostly to harden stainless steel, has doubled in the past two years, reaching a 14-year high in January 2004. Nickel for delivery in three months fell $325, or 2.1 percent, to $15,425 a metric ton ($7 a pound) on the London Metal Exchange.

Toronto-based Inco expects reduced supplies to limit the growth in demand for the metal to about 4.1 percent this year, Rochon said. Global supplies will rise by between 55,000 and 60,000 tons, including inventories and gains in mine output of between 40,000 and 45,000 tons, he said.

“If China gets the nickel it needs for current growth plans, it could consume 45,000 tons, or 75 percent, of the extra nickel availability,” Rochon said.

China is poised to supplant Japan as the world’s largest nickel consumer and should represent about 15 percent of the global market by the middle of this year, Rochon said.

China’s nickel consumption, which rose about 22 percent to approximately 160,000 tons last year, is expected to grow this year because inventories are low and demand “continues to climb,” Rochon said.

Rising Demand

“Last year ended with four months of growth,” he said. “Fourth-quarter demand was up 36 percent year-over-year and 2005 has started out even better, with the first two months more than doubling last year’s levels.”

Global nickel inventories in warehouses monitored by the London Metal Exchange are down 33 percent from a year ago at 10,278 tons as of today.

Inco expects to produce 490 million to 500 million pounds of nickel this year, below last year because of maintenance at facilities in Manitoba and Ontario and lower production at its PT Inco facility in Indonesia.

“We expect the nickel market will be tight through the end of the decade,” Rochon said. “World supply will still not be enough to keep pace with even historic demand growth of 4 percent, and the impact of China makes a 4 percent demand growth projection seem very conservative.”

Inco’s production costs this year will be about $2.15 a pound, Rochon said.

Shares of Inco fell 37 cents to C$47.25 at 1:24 p.m. in Toronto Stock Exchange trading. The stock is up 6.2

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