Is the glass half empty or half full? Nickel prices in 2013 will depend largely on supply issues, but with some analysts predicting another year of saturated nickel markets and others forecasting downturns in supply, the outlook is uncertain.
Im fairly optimistic ... because I do see there are some very big supply issues at the moment, said David Wilson, director of metals research and strategy at New York-based Citigroup Inc.s investment research and analysis division. You can run through a whole list of plants that are having problems.
With incident-prone mine startups casting long shadows over nickel supply, other analysts also say 2013 might be the year for prices to finally shine after a weak 2012, when they topped out at $21,725 per tonne in January and slipped to below $16,000 in AugustÑboth well below the 2011 high of $28,905.
A slew of nickel mines that use high-pressure acid-leaching technology will be out of the production circuit for at least part of 2013. Brazilian miner Vale SA, the worlds second-biggest nickel producer, has suffered furnace breakdowns at its 56,000-tonne-per-year Ona Puma Mine in Brazil and wont restart the mine until at least mid-2013, even as it considers divesting its 60,000-tonne-per-year New Caledonia nickel project following a sulfuric acid incident in May. The kiln at London-based Anglo American Plcs Barro Alto Mine in Brazil also is down, and the timing of a restart is uncertain.
Most pressure-leach plants always seem to find a way to stumble one way or another, said Mark Selby, senior vice president of business development at Toronto-based Royal Nickel Corp.
Such problems could result in far lower nickel surpluses in 2013. Wilson said he sees nickel running a 15,000- to 20,000-tonne surplus in 2013 compared with a 60,000-tonne surplus in 2012, while French banking group BNP Paribas SA trimmed its nickel surplus prediction to 20,000 tonnes from 25,000 tonnes due to mine issues. Nickel is living up to its name in being a devilishly difficult metal to produce, BNP Paribas said in a November market analysis.
Larger forces may push up nickel prices as well, analysts say. Macroeconomic influences like governmental changes in China and Japan, as well as increasing optimism coming out of Europe as it deals with its structural debt issues, will limit nickel downsides, said Michael Turek, senior director of brokerage firm Newedge Groups New York metals desk.
Long-term supply issues loom as well. The industry has seen 35 years of underdevelopment, some say, and the cupboard of nickel projects is running bare. Royal Nickel predicts that new nickel projects will meet only 500,000 tonnes of an estimated 1 million tonnes of demand growth in the next decade.
Other analysts disagree. Macquarie Group Ltd. analyst Jim Lennon predicts that nickel stocks will continue to rise regardless of mine issues. The massive Ambatovy nickel project in Madagascar, which is set to produce 60,000 tonnes per year at peak capacity, shipped its first nickel in early November, while Xstrata Plc subsidiary Xstrata Nickels 60,000-tonne Koniambo Mine in New Caledonia finished its first production line in late November.
Along with Chinese nickel pig iron production, growing nickel projects will help put global primary nickel output at 1.82 million tonnes in 2013 compared with 1.73 million tonnes last year, an overall market surplus of 50,000 tonnes or more, according to Macquarie.
That there will be less (nickel in 2013) would be wishful thinking, said a Britain-based trader, who predicts a 30,000-tonne surplus in 2013. Theres too much nickel at the moment, and therell be more (in 2013).
A major factor will be the stainless steel market, which purchases 65 percent of global nickel output. Stainless steel surcharges move up or down with the price of nickel, so if stainless producers believe that nickel prices are rising theyll rush to book orders before nickel is too expensive. Sudden upticks in demand push prices even higher, prompting stainless producers to book even faster, setting off a feedback loop as the market spirals upward. And as supply issues loom over 2013, any slight nudge in prices could launch the market upward.
The moment you think the nickel market is going to turn, you pile in there like crazy, Selby said. The entire stainless steel industry is addicted to this kind of roller-coaster ride.
Since 2007, the real X-factor in the market has been Chinese nickel pig iron, a cheaper alternative to pure nickel in stainless steel production. Nickel pig iron has put downward pressure on prices in recent years. When pure nickel supply is short, Chinese plants step in and cover demand by importing nickel ore from Indonesia and the Philippines, mixing it with coking coal and a mixture of gravel and sand to make nickel pig iron.
Bullish analysts say the relentless supply of nickel pig iron is keeping prices in a headlock.
(There) are large increases in new lower-cost nickel pig iron capacity coming onstream in 2013, Lennon said, predicting that China will produce around 300,000 tonnes of nickel pig iron, equal to 17 percent of world production. It is hard to get excited about nickel prices in 2013 in an environment where oversupply will remain.
But bearish analysts arent so sure. A 20-percent tax imposed by the Indonesian government on nickel ore exports in May brought Chinese imports down by 2.5 million tonnes of ore in the third quarter of 2012 compared with the same period a year earlier, according to Selby, equivalent to a more than 100,000-tonne annualized decline in nickel supply. Rising taxes in Indonesia could be followed by an export ban by 2014.
If typical nickel cycles repeat themselves and there are ore restrictions in Indonesia, you could easily see prices rise back to the $40,000- to $60,000-(per-tonne) range by early 2014 or early 2015, Selby said.
When you get down to the nitty-gritty with nickel, youre talking about activity in the stainless steel industry, Turek said. I think the downside potential for nickel is very limited.