* Nickel pig iron and ferro-nickel at discount to LME price
* Nickel demand expected to shrink 5-6% this year
By Pratima Desai
LONDON, July 9 (Reuters) - Shrinking nickel demand and a
large surplus are unlikely to push London Metal Exchange prices
lower as excess metal is in alloys which cannot be delivered
against contracts on the exchange.
Benchmark LME nickel prices at around $13,500 a tonne are at
their highest since late January and up about 25% since March
when COVID-19 lockdowns saw economic activity slump.
Around 70% of global nickel demand comes from stainless
steel mills, most of them in China. Others major end-users are
companies in the aerospace and oil and gas industries, which
have been hit hard by the pandemic.
Nickel traded on the LME has to be at least 99.8%
purity, while alloys such as ferro-nickel and nickel pig iron
(NPI) contain significant amounts of iron.
The nickel market surplus can be seen in the discounts for
ferro-nickel and NPI against the LME price.
"Ferro-nickel is at a $1,500 a tonne discount, said
Macquarie analyst Jim Lennon. "NPI is trading at a discount of
more $500 a tonne when normally you would see it trade at a
premium. These discounts are unprecedented."
Lennon expects to see a surplus of 115,000 tonnes this year,
nearly 5% of global nickel supply at around 2.4 million tonnes.
Estimates vary, but nickel demand is generally expected to
shrink by 5-6% this year.
"There have been significant demand losses in stainless, but
also in aerospace and in oil & gas," said Wood Mackenzie analyst
Andrew Mitchell, adding he expected a surplus of 140,000 tonnes
this year and 130,000 tonnes in 2021.
Supply has been less disrupted and is expected to drop by
only around 1% this year, sustained by significantly higher
Indonesian NPI output, which Mitchell expects to rise to 600,000
tonnes this year from 400,000 tonnes last year.
"For next year, we are looking at 800,000 tonnes from
Indonesia," Mitchell said.
Historically, nickel producers resist cuts even when prices
fall below costs, which in Indonesia are estimated to be below
$8,000 a tonne.
(Reporting by Pratima Desai; editing by David Evans)