Whereas Deutsche Bank indicated that the nickel market outlook would be better in the first quarter, global nickel market was in surplus by 74,200 tonnes in the first six months of the year, a monthly bulletin from the Lisbon-based International Nickel Study Group (INSG) showed on Tuesday.
Deutsche Bank expects nickel prices to climb from an average of $15,000 per tonne ($6.80 per pound) in the current quarter to $16,500 per tonne ($7.48 per pound) in the fourth quarter and $18,000 per tonne ($8.16 per pound) in the first quarter of 2014 before retreating to $17,000 per tonne ($7.71 per pound) in the second quarter of next year.
“The market has remained in large physical surplus in 2013, and even if substantial producer cutbacks are made, it will stay in structural surplus for some years,” according to the French bank. BNP Paribas says it raised its forecast for a nickel surplus to 65,000 tons this year. There are signs that world nickel demand may have picked up in the first half from a “meager” pace in 2012, but there are still no signs of a cyclical rebound as strong as in the past. The bank indicated it favors “resuscitating its long tin/short nickel trade to capture the two metals’ very different fundamentals. Tin’s premium over nickel has surged in recent weeks, but we think it could move above $8,000/t in 2014.”
World primary nickel consumption totaled 874,200 tonnes in January to June, while primary nickel output was 948,400 tonnes for the period. Nickel mine production in January to June totaled 1,085.8 million tonnes.
After jumping from 13,200 dollars early July to about 15,000 dollars by mid-August, the three months nickel contract per ton on the LME fell to $14,500 on August 22 far from its level at the beginning of years when it peaked at 17,500 dollars. Down nearly 17% since the beginning of the year, nickel is the non-ferrous metal that shows the largest decline in 2013.
Despite the recent rebound in nickel price, which benefited from the improved performance of base metals, market outlook does not encourage optimism, says Jim Lennon of Macquarie Research. The latest data published by the International Nickel Study Group confirms the large surplus in the market. It shows in LME warehouses where stocks have surged since the beginning of the year by nearly 50% to almost 210,000 tonnes. This overall increase in stocks has accelerated in July and August, following the significant reduction and seasonal activity of stainless steel producers which account for two-thirds of the metal consumption. Higher volumes of nickel in LME warehouses was partly caused by the transfer of Chinese stocks to the west, says Lennon. Another part of the country inventory was used to increase the strategic stocks of the Chinese State Reserves Bureau, probably to support the number one Chinese nickel state company Jinchuan.
Although about 35% of the capacity is in the red, the producers are giving little sign of reducing their offer, said Grant Sporre from Deutsche Bank. The depreciation of currencies in producing countries and lower costs provide producers some breathing space. Many new projects are close to completion and mining companies expect these new units to reduce their production costs.
According to Lennon only a sudden shock caused by the announcement of a substantial reduction in supply or a fall of Indonesian ore exports to China and Japan could permanently improve the fundamentals of the market.
In the second half, Glencore Xstrata will increase its production of ferronickel alloy in Koniambo, New Caledonia while Mitsui and Sumitomo Metal will start commercial production at Taganito, a plant in the Philippines. But, says Jim Lennon, the key factor is still the level of China‘s nickel pig iron production. A reduction of 42,500 tonnes in the first quarter of 2014 is expected and will continue in 2014 with a decrease in annual production of 32,500 tons.