##{"id":59097,"date":"2011-11-03T11:23:27","date_gmt":"2011-11-03T00:23:27","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/11\/03\/material-matters-nickel-steel-gold-and-oil\/"},"modified":"2011-11-03T11:23:27","modified_gmt":"2011-11-03T00:23:27","slug":"material-matters-nickel-steel-gold-and-oil","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/11\/03\/material-matters-nickel-steel-gold-and-oil\/","title":{"rendered":"Material Matters: Nickel, Steel, Gold And Oil"},"content":{"rendered":"<p>\n\t<strong>&#8211; Cautious outlook for nickel prices&nbsp;<br \/>\n\t&#8211; Gold price still likely to move higher<br \/>\n\t&#8211; <span class=\"scayt-misspell\">Brent-WTI<\/span> spread continues to close<br \/>\n\t&#8211; Steel market conditions weak at present<\/strong><\/p>\n<p>\n\t<br \/>\n\tBy Chris Shaw<\/p>\n<p>\n\t<span class=\"scayt-misspell\">LME<\/span> nickel prices have fallen steadily for much of 2011 but in recent weeks prices have <span class=\"scayt-misspell\">stabilised<\/span> and, as Macquarie notes, at one point jumped more than 10% above recent lows. This price weakness has been at odds with fundamentals, as prices have come down despite ongoing falls in <span class=\"scayt-misspell\">LME<\/span> stocks of more than 50,000 <span class=\"scayt-misspell\">tonnes<\/span> year-to-date.<\/p>\n<p>\n\tMacquarie suggests the recent price rally has been largely the result of short-covering, this despite some evidence of a deteriorating demand outlook from the stainless steel industry and a sharp increase in nickel production in the September quarter.<\/p>\n<p>\n\tAs this increase in production came despite ongoing delays to large <span class=\"scayt-misspell\">greenfield<\/span> nickel projects and an apparent stalling in Chinese nickel pig iron production growth, Macquarie suggests the near-term outlook for the metal appears bleak.<\/p>\n<p>\n\tIn China Macquarie notes demand did not pick up as strongly as expected after the summer slowdown, meaning mill inventories started to rise sharply in October. This increase is causing some mills to cut supply by as much as 10-15% in month-on-month terms, with more cuts expected in coming months.<\/p>\n<p>\n\tThe weakness in nickel ore prices and extra price credits charged for iron content mean costs are falling for nickel pig iron producers. This leads Macquarie to suggest profit margins for marginal producers in this market are not as bad as the press&nbsp;is reporting.<\/p>\n<p>\n\tGiven higher than normal nickel ore stockpiled at Chinese ports and recent cuts in demand from high-grade nickel pig iron producers, Macquarie expects the production cost of nickel pig iron will fall further.<\/p>\n<p>\n\tAt the same time apparent supply in the Chinese market is continuing to rise, not only from rising domestic nickel pig iron production but from higher imports of finished nickel products. This combination of deteriorating demand and potential moves down of cost support from marginal nickel pig iron producers in China leaves Macquarie with a conservative view on the outlook for nickel prices<\/p>\n<p>\n\tSharps <span class=\"scayt-misspell\">Pixley<\/span> is a physical precious metals trader, which gives the group solid insight into the gold market. In the wake of the Greek referendum decision dragging financial markets back into turmoil, the potential implications for the gold price are again in the spotlight.<\/p>\n<p>\n\tIn the view of Sharps <span class=\"scayt-misspell\">Pixley<\/span> CEO Ross Norman, the fact gold has done little on the news out of Europe suggests some large forces acting on the price of the metal that are currently offsetting each other. These forces are the positive of strong flows of investment money into gold and the negative impact of a stronger US dollar.<\/p>\n<p>\n\tNorman suggests the winning side in this battle over the direction of the gold price is yet to be decided. Most likely in Norman&#039;s view is gold moves significantly higher, as the problems in Greece are yet to fully play out. This suggests gold&#039;s role as a safe haven will prevail as the key driver of the price.<\/p>\n<p>\n\tOne point of note according to Norman is the global gold market is relatively small, as if all of the world&#039;s annual gold production could be sold at current prices it would give a &ldquo;market cap&rdquo; only equal to that of Vodafone.<\/p>\n<p>\n\tThis means the gold price can easily be driven in one way or another. In Norman&#039;s view, it is clear which direction the prevailing wind is coming from at present.<\/p>\n<p>\n\tTurning to the oil market, <span class=\"scayt-misspell\">FOREX.com<\/span> research director Kathleen Brooks suggests the speed at which the spread between Brent Crude and West Texas Intermediate (<span class=\"scayt-misspell\">WTI<\/span>) has started to narrow post the death last week of the Libyan dictator <span class=\"scayt-misspell\">Gaddafi<\/span> is a surprise.<\/p>\n<p>\n\tBrooks had expected the gap would take some time to narrow, as the extent of damage to Libyan oil supply from its civil strife was not clear. But the narrowing has come sooner, Brooks suggesting a couple of reasons why this has occurred.<\/p>\n<p>\n\tOne is more Libyan oil is coming back on line as conditions in the country <span class=\"scayt-misspell\">stabilise<\/span>. The other is early snowfall across the north-east of North America has driven an increase in demand for US oil. This has had the effect of taking some of the shine off Brent crude.<\/p>\n<p>\n\tThe spread between Brent and <span class=\"scayt-misspell\">WTI<\/span> has now re-traced 38.2% of its move from the July 2010 low to the high in early October. There remains scope for the spread to narrow further in the view of Brooks, which would mean further downward pressure on Brent crude prices.&nbsp;<\/p>\n<p>\n\tThere remains potential for the spread to return to more normal levels, which would suggest both Brent and <span class=\"scayt-misspell\">WTI<\/span> trading at around the same price. This was the case prior to July of 2010.<\/p>\n<p>\n\tIn steel, industry consultant <span class=\"scayt-misspell\">MEPS<\/span> notes ferrous scrap prices dripped across the world in October, reflecting a downturn in the global steel market. Buyers have doubts about short-term prospects for the industry given global economic uncertainty, <span class=\"scayt-misspell\">MEPS<\/span> noting few buyers are prepared to build inventories in the current environment.<\/p>\n<p>\n\tWith mill order books also weakening, this has translated into lower demand for ferrous scrap. <span class=\"scayt-misspell\">MEPS<\/span> expects the current environment will extend until close to the end of the year, after which there is potential for a return to inventory rebuilding.<\/p>\n<p>\n\tImproved mill order books and tight supply of ferrous scrap should produce a revival in the market, while <span class=\"scayt-misspell\">MEPS<\/span> also expects increasing input costs for <span class=\"scayt-misspell\">steelmakers<\/span>. Another potential positive is if the current appreciation of the US dollar proves to be short-lived, which <span class=\"scayt-misspell\">MEPS<\/span> sees as possible if Europe&#039;s debt issues can be addressed.<\/p>\n<p>\n\tSteel prices in general also declined in October, <span class=\"scayt-misspell\">MEPS<\/span> noting this reflects producers needing to offer discounts to stimulate demand given order books are not full at present. At present <span class=\"scayt-misspell\">MEPS<\/span> notes a number of Canadian mills are operating below capacity, a situation not helped by buyers anticipating year-end specials as was the case in 2010. Such specials may be problematic for producers, as <span class=\"scayt-misspell\">MEPS<\/span> notes costs are rising given more expensive raw material inputs.&nbsp;<\/p>\n<p>\n\tIn Europe, buyer caution reflects concerns over the regions financial crisis, which is undermining both business confidence and steel demand. The lack of demand means output cuts have had little impact and <span class=\"scayt-misspell\">MEPS<\/span> notes more production cuts are planned in the region.<\/p>\n<p>\n\tChinese demand is also a worry, as <span class=\"scayt-misspell\">MEPS<\/span> notes inflationary pressures have seen the government force banks to cut back on credit supply. This is slowing the pace of growth of steel consumption, as manufacturing output is weakening. While <span class=\"scayt-misspell\">Baosteel<\/span> has not adjusted its bookings as a result, <span class=\"scayt-misspell\">MEPS<\/span> notes other large mills have announced decreases.<\/p>\n<p>\n\tSeptember saw a sharp drop in Japanese steel export volumes, the fall a reflection of weak demand and growing capacity in the Asian region. Imports are picking up given a strong yen, but <span class=\"scayt-misspell\">MEPS<\/span> sees scope for inventories to push higher in coming months.<\/p>\n<p>\n\tIn South Korea the steel manufacturing sector remains depressed, but <span class=\"scayt-misspell\">MEPS<\/span> notes domestic forecasts are for a small increase in steel demand in 2012 from overseas markets in particular. On the supply side <span class=\"scayt-misspell\">MEPS<\/span> notes inventory adjustment has been slow.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A glance through the latest expert views and predictions about commodities with the outlook weak for both steel and nickel, gold expected to go higher and a closing of oil price spreads.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[23,89,24,88,22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59097"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59097"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59097\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59097"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59097"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59097"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}