A year ago, nickel market watchers were hoping to see a deficit in the second quarter of the year. At the very worst, analysts were calling for balance in the space after years of turmoil.
However, as those who’ve kept up with nickel-related developments are no doubt aware, neither of those positive predictions came true. In fact, quite the opposite happened — as the below chart from Kitco shows, the nickel price crept steadily downward throughout 2015, ending the year just below $4 per pound.
Putting that into perspective, Bloomberg states that as of midway through December, the nickel price had fallen more than 40 percent since the start of the year. Meanwhile, The Sudbury Star recently described nickel as “the worst performing main contract on the London Metal Exchange,” noting that the metal reached its lowest price since June 2003 in November.
To find out what went wrong for the nickel price in 2015, and to learn what’s in store for the base metal in 2016, the Investing News Network reached out to Salman Partners’ Raymond Goldie. Here’s what Goldie, also a director at Equitas Resources (TSXV:EQT), had to say.
2015 nickel themes
Nickel’s 2015 price troubles can largely be summed up in one word: China.
According to Bloomberg, the Asian nation is facing its “weakest growth in a generation,” an issue that’s reduced demand for many products. However, nickel has been particularly hard hit because China consumes about half of the world’s nickel.
Explaining the situation in more detail, Goldie said that while end-use demand for nickel did grow in 2015 by about 3 to 4 percent, “to a degree that neither [he] nor the market expected, much of this demand was satisfied by running down stockpiles of finished nickel, both in China and the US, that were larger than had been realized.”
In other words, the deficit that was expected by some did not happen because there was more finished nickel available than anticipated.
Goldie also pointed out that China’s continued production of nickel pig iron — a low-grade ferronickel used in stainless steel production as a cheaper alternative to finished nickel — didn’t help matters.
“Like the dog that did not bark in the night, the big news [in the nickel space in 2015] was what did not happen: China apparently did not cut its production of pig nickel to a rate below 300,000 tonnes of contained nickel per annum,” he said.
Originally, Goldie had expected depleting Chinese inventories of high-grade nickel laterite ore (used to make nickel pig iron) “to force, around the end of October, sharp cutbacks in China’s production of pig nickel.”
2016 nickel price forecast
2015 might have been a bad year for nickel, but luckily many involved in the space are hopeful about its prospects in 2016.
Goldie is one such optimist. He believes that a “surge in China’s net imports of finished nickel in September and October” indicates that the country’s finished nickel inventories “are probably down to normal working levels now.” Furthermore, he sees a number of other factors positively impacting the nickel market in 2016, namely:
- US inventories of finished nickel should get back down to “normal levels” during the first quarter of 2016
- Chinese inventories of feedstock for nickel pig iron smelters should be “largely gone around the same time”
- End-use demand from both China and the western world should continue to grow by 3 to 4 percent per annum
All in all, he “expect[s] a bull market in nickel that could last several years.”
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Other optimists include Morgan Stanley (NYSE:MS), which according to Bloomberg has chosen nickel as its “most preferred metal.” The firm has an average nickel price forecast of $10,692 per tonne for 2016, and is calling for the metal’s price to reach $12,236 in 2017. Bloomberg also notes that nickel is also a top pick for Credit Suisse Group (NYSE:CS).
RBC Capital Markets sees good times ahead for nickel as well, though it doesn’t see 2016 being a breakout year for the metal — it states in a recent report that it’s “reduced [its] price forecasts and pushed out [its] expectation for a significant increase in nickel prices to 2017 and beyond.” The firm sees the metal averaging $5 per pound in 2015, then rising each year to reach an average of $11 in 2019.
For its part, the International Nickel Study Group is predicting a small deficit for 2016.
It’s tough to say whether 2016 will be a good year for nickel or another disappointment like 2015. While all of the positive commentary discussed above is certainly promising, it may be tough for investors to swallow given the current state of the market.
For clues on the nickel price forecast, it seems that China will be the key factor to watch — and while that might sound broad, paying attention to the catalysts mentioned by Goldie could be a good start. In particular, he recommend keeping an eye on the Asian nation’s net trade in finished nickel because “import/export figures are generally more reliable than other economic statistics.”
It’s also worth noting that nickel production cuts from major miners like Glencore (LSE:GLEN) may be in the cards; however, as yet only cuts from Chinese nickel producers have emerged, and there’s been little reaction from the nickel price so far.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.