BMO increases nickel price forecast for 2009-2012

by Dorothy Kosich, Mineweb.net

BMO Capital Markets has increased its mid-term nickel price assumptions by 26% to US$5.80/lb and 36% for 2010 to US$7.50/lb.

In analysis published Thursday, BMO Research upgraded the outlook for nickel for the second half of this year, 2010, 2011 and 2012. The long-term price forecast of US$8.50/lb has been maintained.

The improved outlook is partially attributed to "much improved sentiment toward base metals in general and pending improvements in demand conditions."

"Additional factors include signs of an economic bottom in the U.S., the fact that the Chinese economy is showing the capacity to absorb large nickel imports (suggesting some restocking) and aggressive production cuts," said BMO analysts David Cotterell, Bark Melek, David Radclyffe, and Tony Robson.

The analysts noted that LME nickel prices have jumped 25% since late December to $6.60/lb. "The general improvement in sentiment was a factor, through strong Chinese buying, an improving U.S. economic outlook and movements in the stainless steel market are the underlying reasons."

Meanwhile inventories of manufactured goods globally are declining, manufacturing in China turned positive and new manufacturing orders and housing are looking hopeful in the U.S. "This should mean that stainless steel production and nickel demand be re-energized, potentially unwinding material amounts of LME inventories quickly," the analysts forecast.

In BMO's analysis, it was noted Chinese stainless steel product "has perked up recently with reported utilization rates of 90% at larger mills. Whether or not this is sustainable is an open question, as the Chinese government is said to be rationalizing production and taking steps to cut overcapacity."

"These actions are expected to moderate in the coming months," the analysts advised.

Meanwhile, western world producers are expected to enter their own restocking phase, "which will support the relatively weak underlying nickel demand and aid prices," they added. "Combined with a recovering economic environment, the corollary to the severity of the nickel price correction and this market's relative liquidity suggest that prices may rebound quickly."