The strikes at Vale's Voisey's Bay and Sudbury nickel operations in Canada spanning H1 2009 and H1 2010, coupled with strong demand growth, supported the nickel price and saw LME nickel stocks decline from February 2010 onwards. There is likely to be an overflow of nickel supply coming in the next two quarters, promising to move the market from balance in 2010 to make it a surplus in 2011. The initial spike in demand from the stainless steel sector has come and gone, as evidenced by the slip in stainless steel scrap demand in H2, and while we expect a pickup in nickel demand in Q4, it will not keep pace with supply. Support for the Nickel prices could be the impact of higher Chinese power costs on nickel pig iron (NPI) production, which could lead to output volumes falling in the near term as stainless mills switch to refined nickel as NPI prices rise. Declining LME nickel stocks have lent support to the thesis that nickel demand from the stainless steel sector, its largest end use has strengthened. This will at least partly offset the additional supply coming from a raft of new projects that have started or are due to come on line in the next several months. Nickel prices have given a decent returns of around 22% last year and in the next year also, prices are expected to perk up to a level of around Rs1250-1300/kg from the current price of Rs1020/kg, and trade in a range of Rs880/kg on the lower side and Rs1300/kg on the higher side. One positive aspect from this will be that the substitution of nickel in stainless steel products will slow and even halt, as the nickel price remains subdued.

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