With the price of nickel down around 7 percent and year-end stocks in LME warehouses at their highest levels since May, investors in the base metal were hard-pressed to find good news in 2012. However, price-positive developments could be around the corner, according to analysts, who predict that the surplus of mined nickel forecast to come onto the market from China and elsewhere is overblown.
from Citi Research states that "fundamentally misunderstood" nickel suffers from a "reputational deficit amongst many in the analytical community" because of assumptions made about its oversupply.
These assumptions include the fact that every year for the past five years, a "wave of supply" has been due to hit the nickel market — however, that wave has failed to materialize, mostly as a result of failed production estimates.
Underperforming nickel assets in 2012, notes Citi, include Vale's (NYSE:VALE) 53,000-tonne-per-annum (tpa) Onca Puma ferronickel operation, which needs a complete furnace rebuild and is unlikely to restart until mid-2013; Anglo American's (LSE:AAL) 40,000-tpa Barro Alto ferronickel operation, which suffered a kiln sidewall collapse in October; and up to 50 percent of Chinese nickel pig iron production reportedly being shuttered due to low nickel prices.
In addition, Russian miner Mechel (NYSE:MTL) said just before Christmas that it will be closing its South Urals nickel plant due to a "slowdown in demand for the metal and what the company regarded as a 'bleak' outlook for price recovery in the near future," reported The Australian.
As a result of this "supply failure," as well as other factors, including low stainless steel inventories in Europe and China (nickel is a key ingredient of stainless steel), Citi expects nickel to rally to $21,000/tonne in the first quarter of this year — a 19-percent increase over the current LME price of $17,540/tonne. The research group expects nickel to average $21,770/tonne in 2013 and rise to $24,400/tonne in 2014.