Nickel market perspectives seen unclear in near future
Last year, the nickel market largely underperformed with price for the metal having slumped by 30% in the middle of the year. The base metal industry, like the entire metallurgy sector, was mainly impacted by macroeconomic factors. At the same time, the market saw a nickel surplus last year in addition to increasing production volumes of nickel pig iron in China, which is an alternative to the more expensive ferronickel.
This year’s dynamics are not clear. The market expects another surplus, which will be larger than 2012. The slow economic recovery will support the demand for the metal. One of the positive factors is that the price will not drop to record lows again, experts said.
2012
According to the World Bureau of Metal Statistics (WBMS), global nickel production increased 6% to 1.888 million tonnes in 2012, while demand for the metal fell by about 1 % to 1.772 million tonnes. Thus, the market saw an 117,000 tonne surplus, compared to a 3.1 tonne deficit in 2011.
Nickel mining rose 6.6% to 1.963 million tonnes last year. The largest producer of the metal was Russia’s Norilsk Nickel, which accounted for about 16% of the market. The company looks stable even amid the weak market and surpasses other producers because of low production costs and its diversified structure.
BEGINNING OF 2013
In January, optimism on the global markets led to a 7.3% growth in the nickel price to U.S. $18,350 per tonne on the London Metal Exchange (LME). In this period, nickel was one of the growth leaders among other traded metals. Nickel was not able to surpass platinum, which gained 8.4% in the stated period. The January growth was provided by increased sales volumes, and investors’ readiness to acquire the underestimated metal.
According to International Nickel Study Group (INSG), nickel production in January again exceeded demand in January. Refined nickel output totaled 167,900 tonnes, demonstrating a 16% year-on-year growth. At the same time, nickel consumption rose 13% to 150,900 tonnes, thus the surplus totaled 17,000 tonnes in January, up from 10,600 tonnes in January 2012.
In February, the price continued to grow and reached $18,743 per tonne, but later corrected down to $17,000 per tonne, most likely because of the lack of Chinese investors on the market due to the celebration of the Lunar New Year.
The February slide continued into March and the metal price slumped to almost $16,000 per tonne. Steel production, which consumes around 70% of nickel globally, faces hard times. Nickel warehouse stocks on the LME continue increasing. After exceeding the 150,000 tonne level in late January, nickel stockpiles were already over 175,000 tonnes as of late April. As of April 2012, nickel warehouse stocks on the LME amounted to about 100,000 tonnes.
Currently, the price of nickel is also at low levels. As of April 26, nickel was traded at about $15,400 per tonne, while the metal’s maximum this year was $18,660 per tonne.
BCS Analyst Oleg Petropavlovsky said that the reason behind the fall in prices is overproduction of nickel. “Currently, about 30% of the world’s nickel production capacities are loss-making. If producers start cutting production capacities, the metal surplus will reduce and prices will begin to recover,” he said adding that one should not expect any growth in prices within the next three years.
FORECAST
The demand for both nickel and steel is projected to be moderate this year. Most analysts and bank experts expect a continued growth of nickel stockpiles and a rising gap between supply and demand.
Unresolved global economic issues, as well as slowing economic growth in China, will continue to affect the metallurgy industry in 2013. However, the growth rates will be higher than in 2012.
“There is an opinion that nickel will be in significant surplus in the medium-term perspective. However, the situation is not as simple as it looks. The forecasts take into account a large number of projects, which have already been delayed or almost cancelled. Many projects also face considerable infrastructure restrictions or political risks. Thus, current nickel prices may include wrong market expectations for supply and demand, which are additionally affected by macroeconomic risks. We do not expect a breakthrough over $20,000 per tonne. The price will be in the range of $16,000–20,000 per tonne. Our forecast for this year is about $18,000 per tonne. The platinum group metals, as well as copper, have a better outlook. The weakening U.S. dollar against the commodity currencies, increased growth of production and stainless steel consumption in China, may all drive nickel prices higher,” Renaissance Capital Analyst Boris Krasnojenov said.
Investcafe Analyst Andrei Shenk has a moderately positive forecast for nickel prices this year, envisaging a 3%-4% growth. “However, the risks of growing volatility on the commodity markets are increasing at the moment, which suggests a possibility of rather significant price fluctuations. A growth in demand should lead to the growth in prices on the LME to $18,000-$18,500 per tonne, however it may happen only at the end of the second quarter,” Shenk said.
Growing production of nickel pig iron in China may become an additional factor affecting supply and demand on the nickel market. China currently builds more and more nickel pig iron production capacities, including new rotor furnaces, which significantly lower its production costs. As a result, China may boost nickel pig iron production by 25% to 300,000 tonnes in 2013, which will result in a 14% decrease in nickel imports to 295,000 tonnes. Even in this case, China’s nickel imports will be the largest since 2009.
BFA Bank Analyst Yulia Oniximova said that it will be feasible for the nickel price to return to $16,000 per tonne given the current market conditions. “It is above the average level of production costs and will allow for gradually reducing the nickel surplus on the market. The outlook of copper, which is fundamentally weaker now due to lower production costs, is also important. It is possible that we will see a number of suspended projects in the near future around the world,” she said.
Confirming the expert’s words, Russian metals giant Norilsk Nickel has decided to suspend production at its Lake Johnston asset in Australia, the company’s only operational mine in the country. The Norilsk Nickel Australian division also comprises suspended nickel project Black Swan and Cawse plant, and Honeymoon Well nickel deposit.
Additionally, the company is considering suspending its Tati Nickel mine in Botswana in order to minimize overall production costs.
Summing up the above mentioned facts and opinions, we do not expect a significant growth in the base metals sector, and the whole metallurgy sector, in the near future. This year, even a significant increase in stainless steel production in China will not be able to push nickel prices higher. In 2014, experts also expect a moderate growth.
At the same time, there are negative scenarios. Again, China will be in focus, because experts may underestimate or overestimate real demand in the country. If there are significant problems in the Chinese economy, which may indirectly affect nickel demand, a new collapse may happen taking into account the increasing volumes of nickel production and stockpiles. Overall macroeconomic worries differ from the real situation.
Last year, the nickel market largely underperformed with price for the metal having slumped by 30% in the middle of the year. The base metal industry, like the entire metallurgy sector, was mainly impacted by macroeconomic factors. At the same time, the market saw a nickel surplus last year in addition to increasing production volumes of nickel pig iron in China, which is an alternative to the more expensive ferronickel.
