Supply cuts are required if the global nickel market is to see any sign of a meaningful price improvement, Deutsche Bank said Tuesday in its fourth quarter commodity update.
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"Historically many of the producers have held on, hoping that demand and prices would come to their rescue. We think this is unlikely in the short-term, and curtailments will be required to see any meaningful price improvement," the bank said.
Deutsche Bank estimates that around 50% of the industry is loss-making at current price levels and this includes most of the low cost Chinese nickel pig iron (NPI) producers.
The nickel market is also looking for a demand recovery, especially from the stainless steel sector that accounts for around two thirds of global consumption.
"Stainless steel demand has disappointed on the downside in all regions expect for Europe," it said.
The bank notes that the stainless steel industry is currently going through a de-stocking cycle with inventories at 'uncomfortable' levels in many regions after a large restocking drive last year.
As a result of the oversupply and lower demand it has cut its full year stainless steel melt growth to 1.3% or 43 million mt.
"In our view we only need a small improvement in the demand outlook, especially in China to drive a restocking rally," Deutsche added.
However, it noted that while the end of Chinese destocking is positive for the nickel market, there has not been a significant decrease in LME stocks or an increase in SHFE stocks.
"SHFE stocks have increased by around 10,000 mt over the past few months. This means that off exchange stocks -- we no longer refer to them as hidden, because the market is now well aware of them -- are simply being transferred from one location to another without being consumed," it said.
As a result, Deutsche Bank said consumers will feel less pressured to chase nickel rallies quite so intensely with the knowledge that the market is well supplied.
Three-months nickel on LMEselect was trading at $9,840/mt at 0932 GMT Tuesday.