Часть 1.

Earlier this year, I made a similar presentation to this in Shanghai. At that time, it was apparent that the normally civilised dialogue between nickel sellers and nickel buyers was becoming highly emotional. Nickel prices had run up at a speed and to heights that were unknown to anyone whose experience did not go back to the nineteen eighties.

The emotion that is always associated with such events was amplified by the willingness of third parties to attribute blame – the usual scapegoats being hedge funds and the LME. Other analysts were either throwing fuel on the flames by talk of an upcoming acute shortage of nickel, or throwing cold water on them by talk of large-scale substitution of nickel in stainless steel. Volatility was seen as a specific feature of nickel, rather than a reflection of wider economic change and uncertainty.

Since then I perceive that the emotion associated specifically with nickel has decreased, hopefully to be replaced by careful, cool analysis. That is not to say that the apparent ideal of stability is here. We continue to live in, or be cursed by, changing times.

What has changed?

Firstly, nickel prices have traded in a much narrower range than was seen in the previous six months, and in a very much narrower range than forecast by some of the more extreme analysts. True the price is higher than it has been in recent years, but the month-to-month variation has decreased.

Incidentally, the much-vilified LME has offered a route for anyone who is seriously concerned about locking in a firm nickel price forward for several months or even years. Forward LME nickel prices have been both less volatile than spot prices and, for the last year or more, lower than them. It could be said that the LME has effectively been offering an incentive for forward price commitment.

Secondly, it has become clear that volatility and high prices are not a unique characteristic of nickel prices but are becoming increasingly common in all industrial raw materials. In a recent editorial, the Metal Bulletin referred to the “virus of volatility that has infected global commodity markets”. The editorial was stimulated by the very sharp price rises of iron scrap that have been seen in recent months, with prices for many grades reported as more than doubling over a nine-period and increasing of 25-60% over two months. No doubt emotion is high in steel scrap buying and selling circles. No doubt someone is being blamed. But this time it will be difficult to put the finger on hedge funds and the LME.

High prices and volatility are mostly attributable to the far-reaching changes taking place in the structure of the global economy, especially in its manufacturing sector, and especially associated with the dramatic industrial developments in China and India. It is very exciting to see the economic success of these economies. It is, on balance, excellent for their large populations. It is, on balance, excellent for the raw material supplying industry worldwide. It may not be so good for some parts of the established manufacturing industry in the EU, North America and Japan.

Major new raw materials-using capacity is coming on stream, with plans for much more. New supply chains have to be established, with implications for distribution, shipping and warehousing systems. The filling of new supply chains always distorts and confuses otherwise transparent commodity market systems - just as the winding up of defunct supply chains can give rise to opposite distortions.

Turning to China. I am not a China expert. Nor do I intend to present a highly detailed analysis of nickel supply and demand in China. Instead I want to discuss some aspects of the pattern of nickel use in China and to offer some thoughts on the future trend. Finally I will touch upon the delicate and sometimes controversial subject of price-related substitution. For reasons that I hope will become obvious, my talk has the sub-title: “Is China Different?”