“Indonesia’s ban on the export of all unprocessed nickel-containing ores will turns today’s world supply & demand balance from ‘surplus’ to ‘deficit’ by early 2015,” says Scotiabank economist Patricia Mohr.
In the latest edition of the Scotiabank Commodity Price Index published Wednesday, Mohr observed that Chinese stainless steel producers’ inventories of Indonesian ore “will largely be depleted by year-end.” As a result, Chinese mills urgently boosted imports of FeNi (nickel & iron) by 70% during the first quarter of this year.
“The strength in Chinese nickel orders is coming at a time of improving stainless steel demand in the United States and signs of firmer stainless orders in Europe,” Mohr said. “This reflects more favorable market conditions in the U.S. auto, heavy truck & transportation sectors and in the energy and chemical processing industries.”
LME nickel prices—important to the Sudbury Basin, Thompson Manitoba, Raglan in northern Quebec and Voisey’s Bay in Newfoundland and Labrador—have surged from a weak US$6.31 per pound early this year to as high as US$9.62 in mid-May, up 52%.
As world mined nickel supplies plunge 20% this year due to the Indonesian nickel ban, Mohr said the nickel price forecast has been revised up to an average of US$8.30 this year, US$10.75 in 2015, and US$12.50 in 2016. “Canada will climb back into No. 3 spot in world nickel production this year, after the Philippines (No. 1, based on ore shipped to China for NPI [Nickel Pig Iron]) and Russia (No. 2),” she predicted.
“The profitability of Canadian nickel mines have shifted from marginal to strength,” she observed, as margins now average roughly 22% over costs including depreciation.
An important by-product of nickel mining in Sudbury, palladium has also jumped by 16% since late 2013, she added.
In her analysis, Mohr observed that Vale’s hydrometallurgical plant at Long Harbour, Newfoundland, which will process Voisey’s Bay concentrates/ore into cathode—a pure nickel product for superalloys in addition to stainless steel—will come on stream later this year at a time of favorable global nickel demand.
“However, the start-up of about 11 ore processing plants making NPI or FeNi in Indonesia (involving Chinese investment) could cap nickel prices by 2016:H1,” she cautioned.
Meanwhile, Mohr noted that palladium “has strengthened markedly since late 2013.”
“The global supply & demand balance is in ‘deficit’, with a Russian government stockpile—administered by Gokhran—believed to be close to depletion. Interestingly, the Russian government indicated last week that it would build up the stockpile once more,” she said.
“Consumption—driven lately by auto catalytic converters for vehicles with gasoline engines—is benefitting from last year’s record in world motor vehicle sales & production, with an even bigger record expected this year. At the same time, a lengthy strike at platinum/palladium mines in South Africa has cut supplies,” Mohr noted.
The economist suggested that the slower price of liquidity injection by the Fed and its likely gradual withdrawal in 2015 to curb inflation, as the U.S. economy picks up, will continue to check investor interest in gold—as will a stronger U.S. dollar and equity markets over the next six months.
However, she observed, gold prices should be supported by physical safe-haven demand in China, “though not as strong as last year.”
Mohr advised that gold prices are expected to average US$1,295-1,300 this year and US$1,375 in 2015, “before strengthening later in the decade alongside limited new mine supply (linked to recent cutbacks in capital spending by mining companies.”
In her analysis, Mohr observed, “Both coking coal and uranium are now at ‘rock-bottom’ levels, triggering mine production cuts.” Startup of the Imouraren uranium mine in Niger has been delayed until 2017 while Paladin Energy’s Kayelekera mine in Malawai has ceased production, and Cameco has halted the permitting process for the Millennium mine in Saskatchewan.
Nevertheless, she advised, “Further prices declines are likely to be limited.”