GFMS Metal Consulting forecasts that global nickel demand should be boosted late this year by improved stainless stain production, a tighter scrap market and a slight recovery in the austenitic steel ratio.
After what will have been three consecutive years of negative growth, GFMS Metals Consulting is projecting a sharp rebound in consumption forecasting increases of 8.7% in 2010 and 9.2% in 2011.
For the year as a whole, GFMS is forecasting an average nickel price of $10,450/tonne.
It should be remembered that such volatility in nickel demand is quite common with double-digit gains often posted as the industry emerges from recession, GFMS's analysis advised.
GFMS research suggests that inventories are fairly close to peaking as the group forecast a 21,000 tonne surplus this year.
Although GFMS Metals Consulting has taken a fairly positive stance concerning demand prospects, the problem going forward is the capacity overhang-currently idled capacity, Chinese nickel pig iron capacity, and both greenfield and brownfield expansions, the consultancy said. This is likely to procure any return to the bull market conditions seen earlier this decade over our forecast period to 2012.
GFMS does not expect to see nickel prices exceed $17,000 tonne and predicts average prices should not exceed $14,000 tonne during the forecast period.
A major problem for the nickel industry is the availability of plenty supply to meet demand. The most serious problem is the amount of new capacity in the pipeline, which resulted from the bull market encouraging investment in new capacity and technology change, such as the development of large-scale laterite deposits, GFMS asserts.
Another key unknown is the level of Chinese nickel pig iron production, which GFMS assumes will decline further this year. However the capacity will overhang the market for much of the forecast period, which should put a cap on prices even under an optimistic demand scenario.
GFMS believes there is a potential for the stainless steel capacity-which accounts for nearly 70% of nickel demand-to rebound sharply at the end of the year. The sharp cuts in production have limited the inventory build and there will be a lot of pent up demand once the economic environment improves.
Also with nickel prices in our view close to the bottom of the market, the next move in alloy surcharges is likely to be up, which will also help reverse the current destocking mentality, GFMS said. Finally, a possible improvement in credit conditions as 2009 progresses could also encourage some modest rebuild of inventories.