Nickel Price Rise Driven by Steel Demand

Nickel has had a tremendous year so far registering gains of more than 35% in the first quarter and outperforming all other metals traded on the London Metal Exchange. These gains have been driven by expectations of higher demand from stainless steel mills.

Nickel's gains compare favorably with the 3.9% increase in the spot price of copper, 2.7% for aluminum, 1.5% for gold, and 3.5% for silver.

Nickel for spot delivery at LME stood at $24,960 a ton as of March 31, up from $18,452 on Dec. 31, 2009. However, after hitting a 52-week high of $25,011 a ton on April 1, the price cooled over the last two trading sessions and currently stands at $24,678.

Analysts attribute this upsurge in nickel prices to improving demand as indicated by declining inventories. During the quarter, LME inventories were down 6.3% from highs of 166,476 metric tons recorded on Feb. 8 to 155,922 metric tons recorded on March 26.

China, the largest consumer of the metal, is estimated to account for about 30% of global nickel demand, according to Barclays Capital.

Soaring nickel prices have positively impacted the stock prices of nickel miners listed in the United States. Both Vale(VALE) and BHP Billiton(BHP) are currently trading at quarter-highs of $33.09 and $80.78, respectively.

Vale has 12 buy, 5 hold, and no sell ratings, while BHP Billiton has 6 buy, 2 hold, and no sell ratings, according to TheStreet's analysts rating guide.

The emphatic run-up in nickel price has prompted miners globally to either ramp-up production or consider acquisitions.

Jinchuan Group, China's largest nickel producer, has made a $150 million offer for Canadian junior nickel miner Crowflight Minerals(CMLGF.PK) to acquire its assets in Manitoba and Ontario, Canada.

Sumitomo Metal Mining plans to up its nickel production by 23% to 41,000 tons during the 2010 Japanese fiscal year. In February, the company unveiled a three-year plan to increase its annual nickel capacity to 150,000 tons.

Also, ASX-listed nickel miner Mincor Resources may reopen its Western Australia-based Miitel mine, which it had placed on care-and-maintenance following the sharp slump in nickel prices in December 2008.

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