OK, we're still a long way from 2007, when nickel prices hit ridiculous highs of close to US$25 a pound. But Desjardins Securities analysts John Redstone and John Hughes think demand should outstrip supply right through 2010, driving prices back up to US$7.00 a pound. That would be a major improvement on the recent range of around US$5.00 a pound.

"For the balance of 2009, prices should continue to improve, mainly because of a combination of curtailed mine supply, a lack of scrap and a slow but steady recovery in the stainless steel market," they wrote in a note.

They estimated that 105,000 metric tonnes of refined nickel production has been removed from the market because of low prices, or about 8.4% of world consumption. They also wrote that Chinese nickel pig iron production has fallen, and Vale's summer shutdown in Sudbury will remove another 15,000 metric tonnes. Furthermore, they do not expect most of that capacity to come back until prices are firmly above US$7.00 again.

Then there is the improving demand from stainless steel producers. They described the stainless production declines in the second half of 2008 as "catastrophic," with output down 33% in the fourth quarter compared to the same period a year ago. But they noted that initial figures suggest that production rose slightly in the first quarter and has continued to improve in Q2.

Consequently, they wrote that total nickel inventories should be reduced from current levels of 9.8 weeks of consumption to just 6.5 weeks by the end of 2010, which is very positive for pricing.