Prices already dropped to about $32,000 per metric ton recently from a peak of around $54,000 per metric ton in May, according to LME data.
Nickel is getting to look like a bargain now. The metal has lost all its gains for 2007 and has retreated to November 2006 levels. Nickel bulls capitulated and the nosedive appears likely to reverse over the next few months.
The Chinese haven't stopped using nickel and the government may soon nullify its export tax rebate on steel products. If this occurs, stainless-steel pricing could firm and then rebound in the fourth quarter and into 2008. This would help nickel rebound.
The LME implemented new rules aimed at preventing collusion between dominant players, and there's a threshold at which long positions are required to lend to the rest of the market, he explained.
But looking further ahead, the world economy's demand for stainless steel will drive nickel demand, he said. And not just in Asia. The hybrid car market is expected to grow significantly.
Also, take a look at how much investment bankers have been wrong in the past few years, he said. They are counting on some very large nickel laterite projects coming on stream over the next few years. Laterite is defined as a red soil produced in rock decay.
Those types of projects are "much more expensive and challenging," Pinkowski said. "This perceived supply may not be as great as people think it will be."
Earlier this week, Rosbaltnord.ru reported that Norilsk Nickel (NILSY) , the world's largest producer of nickel, plans to spend around $1 billion in its facilities in the Kola Peninsula in Russia by the year 2020.
That confirms what Norilsk may portend for the nickel price.
Vested in CVRD and looking to buy Nickel Sept call option