Australian investment bank Macquarie has revised its supply and demand outlook for the global nickel market and is forecasting a 15,000 mt surplus this year.
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The bank previously expected the global nickel market to record a 30,000 mt deficit in 2015.
"The weaker demand outlook (and concerns about it) combined with the large stock overhang make our previous view that prices would rally to the $15,000-17,000/mt range by year's end look highly implausible now," Macquarie said in a research note.
Stainless steel demand -- which accounts for around two thirds of global nickel consumption -- is now only expected to grow by 2.4% this year, compared with Macquarie's previous forecast of 4%.
"While demand growth has been weak for nickel this year (down around 2% year on year in H1 2015), so has supply. In January-June, we estimate that global nickel production fell by 1.5% year on year, made up of a 22% fall in Chinese nickel pig iron production (due to the Indonesian ore export ban) and a 6% rise in production elsewhere in the world," the bank said.
It estimates that around 50% of global nickel production is loss-making on a cash basis at current price levels.
Macquarie said that, so far, production cutbacks and closures had been limited due to two factors:
1) costs are falling in line with lower metal prices, lower energy prices and a stronger dollar;
2) there still remains widespread optimism about higher prices in 2016 so most producers want to 'hang on' for higher prices.
On Chinese demand, the bank is bearish on the outlook for the second half of 2015, and no longer sees compelling evidence for a strong rebound -- in fact there are fears that demand is weakening in the very short-term, it said.
Macquarie expects global nickel supply to fall 2.3% year on year to 1.95 million mt, driven mainly by an 85,000 mt year-on-year fall in Chinese nickel pig iron production.
Three-months nickel on LMEselect was trading at $10,590/mt at 1205 GMT Monday.