PT Inco– re-iterates Underperform
He believes that the sharp share price rise is unjustified and the industry outlook for nickel remains challenging for several reasons:
(1) Nickel inventory continues to climb. LME inventories are now 106,830t, up 7% in three weeks and just off 13-year highs.
(2) Max Layton of Macquarie's commodities team highlighted that their channel checks do not indicate any significant pickup in orders for base metals (see Commodities Comment- Premature base metals price rally , 3 April 2009 for further details).
(3) Any revival in demand will be matched by an equally robust recovery in production. Nickel producers have cut production by 20% as a result of weak markets. To a large extent, these cuts are temporary and can be easily reversed. Please refer to our recent initiation report, Overwhelmed by negative factors, 23 March 2009, for further details.
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