Nickel futures price seen weak on higher output, lower demand

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Nickel futures prices may continue to rule weak over the next few days mainly on a higher inventory level and poor demand from stainless steel mills.

MCX August 2008 contracts were down by 26% to trade at Rs 789.30 per kg on Thursday over the past two months.

“The ongoing downside movement is expected to continue in the short term and prices are likely to test Rs 700-680 levels on MCX. Prices are likely to consolidate in those levels and are expected to move up thereafter,” an analyst with Karvy Comtrade said.

“We would advise long-term investors to take long positions at lower levels. A break of Rs 875 a kg can take prices towards Rs 950-1,000 levels,” he said.

In the second quarter of 2008, LME nickel prices averaged $25,859 a tonne, which was lower by over 11% compared to the first quarter average of $29,120 a tonne, mainly driven down due to poor demand from stainless steel mills, coupled with higher inventory levels.

In 2008, the International Stainless Steel Forum (ISSF) expects an increase in production and a slight growth in real demand. World mine production is forecast to increase in 2008, as number of projects in Australia, Turkey and Brazil are scheduled to commence operations.

The expected world mine production for 2008 stood 8.4% higher at 1.6 million tonne, compared to the previous year. Overall prices in LME are forecasted to average at $24,330 a tonne in 2008. The market at LME has been continuously correcting from $51,800 levels, and is currently trading near $18,000 levels, thus witnessing a decline of 65% since May 2007.

The production forecast for 2008 is a growth of 4.4%, to 9.1 million tonne. In the Americas, ISSF expects an increase of 3.7% in stainless steel production in 2008, to 2.7 million tonne.

Stainless-steel production decreased by almost 12% in the region during 2007. Western