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PrintPlummeting nickel prices on the London Metal Exchange will crimp domestic stainless demand as distributors are planning to hold off purchases, which in turn will affect nickel consumption, market participants told AMM.
Plunging prices made one stainless scrap trader particularly wary of future demand.
"What a bloodbath. It makes it interesting for us because we don’t know where to price things. I’ve been in this business for 12 years and I don’t think I’ve seen as big a drop ever. My fear is that the consumers are going to scale back some of the orders they placed for October and November because they think they can buy it cheaper later," he said.
Stainless distributors showed no intention of buying material, particularly if nickel continues its downward trend, as surcharges for November material now look to be lower than October.
"It does look that way, so obviously at this point if I don’t have it on order (from a customer) I’m not going to put in an order for material. October is still open (for orders) but I’m not going to do that with the way nickel has dropped," one Southern distributor said.
Nickel traders said that as a result of uncertainty on demand the low prices had not been enough to spur consumer interest.
"Believe it or not, I haven’t had a call from anyone. People are being very bearish on demand," one domestic trader said.
A second domestic trader said some customers had come in to price orders, but had placed no new ones.
"From stainless customers, I hear (business) is as bad as they’ve ever seen it," he said.
However, one trader who sells mainly to the foundry market saw increased business and sold a truckload of material after recent reports that larger volumes had been hard to come by due to aggressive offers from producers.
"We’ve done some big business today," he said.
A European trader said there had been no fallout from the price drop in terms of renegotiations of contracts.
"Consumer interest—yes; renegotiation—no. We never accept the latter. Only postponements, as our LME hedges are set in stone," he said.
There were also no concerns yet that prices were below the cost of nickel production, leading to a possible fall in mine output.
"For most primary producers, prices are still above the cost of production," one U.K.-based analyst said, putting the breakeven price for most operations around the $15,000 per tonne ($6.80 per pound) level.
However, nickel pig iron producers in China could be affected as their cost of production is between $17,000 ($7.71 per pound) to $18,000 ($8.16 per pound), according to a recent analyst note.
This could increase imports of refined nickel and could lend some support to prices, the analyst said.
Three-month nickel fell to lows Friday last seen in June 2010, settling at $18,050 per tonne ($8.19 per pound) in the London Metal Exchange officials, down 7.7 percent from $19,555 per tonne ($8.87 per pound) the day prior.
The alloying metal had traded as low as $17,000 per tonne ($7.71 per pound) in late trading on LME Select Thursday and saw further wild swings Friday, opening at $18,500 per tonne ($8.39 per pound) before dropping to a low of $16,800 per tonne ($7.62 per pound) in morning trade.
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