LONDON (Reuters) - A plethora of nickel projects starting up in the next two years will not cause huge supply surpluses, as some schemes will take time to ramp up and demand will grow, so the metal’s prices are not about to drop much.
Current weakness in the stainless steel sector, the key user of nickel, is not expected to last long.
“Nickel supply will go from a deficit last year and in the first part of this year to a surplus in the second half of this year and in 2012 and 2013,” Macquarie analyst Duncan Hobbs said.
As a consequence, Macquarie expects nickel prices to fall to an average of $21,000 a tonne next year and $19,300 in 2013.
The London Metal Exchange (LME) three-months nickel price
was indicated at $23,183 a tonne at around 0930 GMT on Thursday. In 2007, it peaked at more than double that level at $51,800 a tonne.
Vanessa Davidson of industry consultants CRU Group also expected the nickel market to record surpluses in 2012 and 2013. But at 40,000 tones and 20,000 tones, respectively, they would not be huge, she added.
While demand from the stainless steel sector will remain sluggish for a few months, many see it picking up from around September after the seasonally quieter northern hemisphere summer.
Meanwhile, market watchers are cautious about the contribution to supply growth from the many new projects that have recently started up or are due on stream.
In total, they add up to almost 400,000 tones of additional capacity due to start up in the next two years or so, according to figures taken from Reuters Metal Production Database.
In 2010, refined global nickel output totaled around 1.4 million tones.
Half of the new facilities will use high pressure acid leach technology (HPAL), which has had its share of problems in earlier, and in some cases more recent, incarnations.
Those difficulties led to limited output and closures of some plants using the technology, which is designed to process nickel ores that are otherwise hard to treat nickel.
The process has been refined but experience has left many wary.
“We’re treating all PAL operations with extra caution, we have very slow ramp-up rates,” said CRU’s Davidson.
Continued problems at Vale’s high profile, much-delayed Goro HPAL plant in New Caledonia, which at full capacity it is expected to produce around 60,000 tones per year of nickel, underline the case for such wariness.
“It (Goro) is a completely new project and new technology. It’s facing difficulties to get production in place, but we are expecting in the next two months to restart producing there.,” Vale Director Jose Carlos Martins said in a conference call.
“It’s a very problematic start-up, but we are trying to fix it and to bring it to production.”
Consultants Brook Hunt, the metals arm of Wood Mackenzie, said it has adopted a conservative view of project ramp-ups.
“But even with that conservatism you’re still looking at output growth of 11 to 12 percent this year and a similar percentage next year,” Brook Hunt’s Sean Mulshaw said.
Some new plants — such as Vale’s Onca Puma and Anglo American’s Barro Alto in Brazil — are producing ferro-nickel, using broadly tried and tested technology.
While ramp-ups of these plants could yet fall short of public pronouncements they are still expected to make significant contributions to output levels this year and next.
On top of this, China looks set to keep churning out increasing amounts of nickel in pig iron (NPI) — a low-grade nickel destined mainly for domestic stainless steel mills.
Chinese NPI is widely expected to jump by almost 38 percent to 220,000 tones of contained nickel this year from 160,000 tones last year. Nickel prices around $20,000 a tonne would still leave them making money and so output next year is seen sustained at a similar level to this year.
Demand from the stainless steel sector, which accounts for around two-thirds of nickel offtake, has faded after a strong first quarter.
Even so, Macquarie expects stainless steel output to rise by nine percent this year to 35.2 million tones, after last year’s 24 percent jump from a very low base as it recovered from the global economic downturn.
But the recession has knocked the confidence of stainless buyers and distributors of the material are generally more hesitant in their buying strategies than before the recession.
Wariness about the nickel projects lining up to come on stream has heightened worries about carrying too much stock when prices for both nickel and stainless could fall.
“You have to be very careful with stocks now as you can lose a lot of money,” one European stockholder said.
Editing by Anthony Barker