According to Standard Chartered LME nickel inventories should start to fall by the middle of 2015 as stainless-steel producers in China are forced to switch from using nickel-pig iron to other forms of nickel and ultimately the refined metal.

According to Morgan Stanley the ban on ore exports will shift the global nickel market into a deficit in 2015 for the first time since 2010. Nickel demand will outstrip supply by 97,100 tons in 2015.

Nickel was listed by Societe Generale SA among its top picks for this half as the curb was seen moving the market to shortages.

Goldman Sachs Group sees a 200,000 ton Ni deficit in 2015.

Stephen Briggs, a metal strategist at BNP Paribas in London, says a jump to $25,000 a ton is plausible, Briggs outlook is conditional on the maintenance of the Indonesian ore export ban.

Nickel Market Facts

Fact - The nickel market has been hampered by oversupply in recent years. Jakarta’s ban on ore exports will drastically change that.

Fact - Annual Philippine ore output accounts for the equivalent of around a third of Chinese NPI production. Once NPI stocks have been depleted the NPI market in China faces a significant shortfall.

Fact - Once stocks run out, stainless steel mills in China will have to return to more expensive refined nickel.

Fact - 50 per cent of LME inventory nickel is concentrated in Jahor in the form of high quality briquettes. Historically when so much metal has been concentrated in just one location it’s most often because the metal is tied up in warehouse or financing deals and not available to the market.

Fact - Data shows nickel ore imports into China from the Philippines rising to records.

Roughly 60 percent of global available nickel is in laterite deposits – a deposit in which weathering of ultramafic rocks has taken place.

The initial nickel content is enriched in the course of lateritization - under tropical conditions fresh rock weathers very quickly. Some metals may be leached away by the weathering process but others, such as aluminum, iron and nickel can remain.

Indonesian lateritic nickel ore (saprolite - higher nickel, magnesium and silica but lower iron content) has higher nickel content, typically 1.8 percent to 2 percent, than the 1.5 percent lateritic ore (limonite - higher in iron and lower in nickel, magnesium and silica) from the Philippines.

Once the 1.8 percent Indonesian saprolite runs out China is going to have to produce from the Philippines 1.5 percent limonite ore. That shift is thought to raise the cost of making nickel pig iron to about $20,000 a ton.

Fact - The Philippines might be able to supply up to 20 percent of the ore amount Indonesia supplies. There is no other place for the Chinese to source ore for their NPI industry that doesn’t run into high shipping costs.

Fact - Globally the stainless steel industry has had no need to restock given the ample supply and good availability of nickel. When restocking starts it can lead to some fast rebounds in nickel prices.

Fact - Increased political risk, population and economic growth are causing the exploitation of lower grade larger deposits in geo-politically riskier countries. Mineral deposit distribution is log-normal – a few large deposits control supply.

Fact - In 2010 Chinese nickel consumption was .4 kilogram per capita, Germany was at 1.3 and Japan was the same. If the Chinese were to consume nickel at the same rate as Germans and Japanese Chinese nickel demand would increase by over one million tonnes

Mohr Berlin

“The world supply & demand balance will shift into a marked ‘deficit’ in 2015, as China depletes its inventory of Indonesian ore for ‘Nickel Pig Iron’ production (used in stainless steel).” Patricia Mohr, Scotiabank’s vice president of economics and commodity market specialist

Mohr sees nickel prices moving to US$10.75 in 2015 and then up to US$12 in 2016.

Anton Berlin, head of strategic marketing at Norilsk said the price of this year’s best-performing industrial metal is still too low as the market is set to slip into a deficit next year…

"The nickel price is still quite low fundamentally, as it is below production costs at a number of mines worldwide, including our facilities in Australia. Next year the market may turn into a deficit given that the Indonesian ban is still in place. The price should go up in order for the idled producers to restart working as there is demand for the metal. The metal should trade at $20,000 to $25,000 a ton in order for loss-making producers to break even."

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