A key market analyst says a realistic outlook for nickel prices over the next few years is around $15,000-$17,000/t – but producers should take heart from an expected doubling in demand over current levels by 2030. Addressing the first day in Perth of the 2008 Paydirt Australian Nickel Conference, Alto Capital Research Analyst, Carey Smith, said the high nickel prices of 2006 and 2007 “are gone”. The price collapse has gone from an average for the 2007 full year of $38,023 to a current price of $10,155/t. The outlook going forward will be that the junior end of the market is going to struggle over the next couple of years with little or no capital available to conduct exploration let alone project development.”
“Only the most financially sound laterite projects will get off the ground – and that demands an average grade of at least 1.5% Ni or higher. Numerous nickel mines are expected to shut down globally as profits turn to losses.”
On the supply and demand side, Mr Smith said the high 2006 and 2007 prices had fed a production increase of lesser quality stainless steels (nickel is a key stainless steel component) but the resultant over supply had generated the price slide. “However, supply is now falling dramatically as high cost producers struggle to survive the current low price nickel environment and so the forward long-term outlook is not all bad news.
“Although there will be bumps in the road, demand for commodites will continue to increase over coming decades. Alto Capital expects nickel demand to increase over the next 10 years with demand likely to double the current level of 1.4 Mt/y, by 2030. In addition, as commodities are consumed, it is getting increasingly difficult to replace the depleted resources at a reasonable price and add to this increasing demand from China, India and the rest of Asia. As a result, nickel prices in three years time will be substantially higher than present but unlikely to reach the levels of 2007.”
Smith said the China factor could not be ignored – as it was a market that remained the world’s largest o consumer of nickel. “It is expected to have a nickel consumption of around 352,000 t in calendar 2008 – a level that represents 24% of global demand and which is a sixfold increase in just eight years ago,” Smith said. “While China has its own specific growth problems, nonetheless demand growth will almost be totally reliant on China.”
He described the current down-turn as a “healthy development” for the long-term sustainability of the “multi-decades commodities boom”.
Meanwhile, Western Areas Managing Director, Julian Hanna, predicted the nickel price will bounce back early next year – a prediction supported by Chinese metals traders, he said. Hanna said the Chinese were feeling the current prices pressures on the metal as much as the rest of the world. “The Central Committee in China is fully aware of the need to keep their own resources and infrastructure momentum going,” he said.
“I see the current collapsed nickel price, down to around $4.70/lb, as a real anomaly. I do not believe it will sit there for very much longer and will rebound rapidly. This was reinforced during a recent tour of Chinese nickel smelters and mines where they expect the bounce back around Chinese New Year – which coincides with our Australia Day – and we agree with that. The ‘happy zone’ for the nickel price is between $10 and 15/lb. We regard $8/lb as where it starts to negatively impact production and while it has headed below that recently, we expect it to return to sensible levels from early 2009.”
Hanna also warned equity markets against too hard a marking down of the metal, arguing that 5% and 3% nickel ores in Australia remained the highest value commodities per tonne of mined ore. Western Australia, he said, was particularly advantaged, as on a global scale, it had most of the highest nickel grade deposits.