TORONTO – The five-year losing streak for nickel prices is likely to continue for at least one more year, as several major long-delayed projects come online potentially flooding the market with excess supply, research firm Wood Mackenzie said Monday.
Andrew Mitchell, principal nickel analyst with the U.K.-based energy and metals research firm, said he forecasts about 25,000 metric tonnes of surplus in 2012, pushing prices to $8.38 US a pound on the year.
“Prices have been pretty good for the first quarter, but we’re starting to see a general trend down,” he said at the Prospectors and Developers Association of Canada’s international convention and trade show.
Nickel pushed to a high of about $9.75 US a pound in late January, highest in almost six months, but has since tumbled back to the $8.80 US a pound range. Since peaking at almost $25 a pound in the summer of 2007, nickel has been on a sharp decline in five years since, range of between $15 and $5 US a pound.
“In the early 2000s, everybody was looking at long-term prices between $3 and $5 US. That was just not high enough. With a perception of $5 US, nothing got built,” he said. “Then suddenly we had a shortage of nickel when China came to market. Prices went through the roof and everybody developed projects.”
However, several of those major nickel projects around the world, including in Brazil and Canada, have been delayed for much of the past five years and are only now set to begin producing substantial quantities of nickel in 2012, Mitchell said.
“The question now is how will those projects perform?” he said.
That said, Mitchell still considers the nickel market a balanced one, with a few factors that could easily reduce that excess supply.
For one, China has had to invent nickel pig iron as an alternative due to a lack of supply from overseas over the past few years. But with worldwide prices trending downward, China may become a buyer again if prices fall enough.
As well Indonesia, one of the world’s biggest nickel producers, is considering an export ban on nickel by 2014, which may move prices rapidly higher.
“There was a bit of a rape and pillage thing going on and the Indonesian government thought it wasn’t getting the revenue it should,” he said.
Mitchell does not expect Indonesia to go through with the ban. Rather, the country will introduce an export tax, he said.
Overall, beyond 2013 the outlook for nickel prices is much brighter. Mitchell forecasts prices between $13 and $13.50 US in the long term. Hot spots for development include Brazil, Canada, Russia and parts of Africa.