The nickel is coming ::Macquarie Research

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The nickel is coming
Feature article
 We review and summarize the outlook for nickel supply in 2011 and 2012.
Despite some short-term disruptions, we foresee steady supply growth in the
coming quarters.
Latest news
 Year to date, the copper market appears to have been in balance, despite
anaemic growth in Chinese copper semis output and significant de-stocking of
scrap and copper concentrate. Year-to-date LME copper stocks have risen by
~90kt, Comex stocks have risen by ~15kt, and bonded stocks have risen by
100kt (from 400kt as at end 2010 to around 500kt at present). Largely
offsetting this has been a fall in SHFE and consumer stocks of almost 50kt
(note that over 30kt of previously bonded stock was included in SHFE stock
numbers in March 2011) and 100-150kt respectively over the year to date.
Recently stocks have been falling significantly, and we expect a tight 2H11
will result in higher copper prices.
 After recent declines, pricing sentiment in the steel market is showing signs of
stabilising. The latest market survey by The Steel Index shows that 17% of
global participants now expect higher prices in the coming three months, up
7% WoW. However, with 57% still anticipating a price decline, the shift in
mood has some way to go. We expect to see European and US prices
decline further as end users cut back purchases ahead of the summer.
 The NDRC has issued China's 2011 list for encouraged imports, which took
effect on 17 May. In commodities, the big changes are that uranium
concentrates and fines (but not processed uranium) have been removed,
while molybdenum concentrates has been added. This reflects our view that
after stocking 20,000tU over recent years, Chinese appetite for further
uranium stocking is waning. However, we expect imports from Kazakhstan to
maintain steady volumes over the rest of 2011, keeping the ex-China market
in slight deficit. Meanwhile, the addition of molybdenum (coupled with the
supposed export quotas) reflects the government’s concern over raw material
sourcing availability for its rapidly growing stainless steel sector – nickel ores,
ferronickel and chrome ores are already on the list.
 The International Lead & Zinc Study Group's (ILZSG) latest data showed a
zinc market surplus of 111,000t for January to March 2011, which was over
20% lower than in Q1 2010. However, it is important to recognise that
ILZSG’s data reports apparent consumption for China and does not make any
adjustment for unreported stock changes. Other data suggests there has
been a continuing drawdown of unreported zinc stocks in China in Q1 2011.
China's galvanised steel production increased by 17% YoY to 6.8mt in Q1
2011 (which was a new first quarter record), whereas apparent zinc demand
rose only 12%. The same data points (39% and 5%, respectively) suggest an
even deeper drawdown of unreported zinc stocks occurred in China in 2010.
We also note that open zinc warrants on SHFE are now falling for the first
time in about six months. In lead, ILZSG's data showed a surplus of 24,000t
for the three months January to March 2011, compared with 10,000t in Q1
2010.