TORONTO (miningweekly.com) – New forecasts by BMI predict nickel prices will rise in the short term, however, the rally will taper off by year-end, as heightened Chinese refined nickel imports and ore supply disruptions from the Philippines buoy prices.
However, the Fitch group research firm says positive long-term fundamentals remain in place, as prices for the steelmaking ingredient are expected to recover from an average of $9 000/t in 2016, to $11 500/t by 2020.
BMI explain that nickel prices will rally in the coming weeks on fears of nickel ore supply disruptions from the Philippines widening the existing global refined nickel deficit.
The appointment of antimining advocate Gina Lopez as the head of the Department of Environment and Natural Resources, in the Philippines, will lead to supply disruption from the world's largest nickel ore supplier.
On July 1, Lopez ordered an audit of all mines in the Philippines, following which, two nickel ore mines were suspended and the issuance of new exploration permits was halted. Stricter environmental regulations will hurt Philippine nickel miners owing to increased environmental regulation compliance costs, exacerbated by the current low nickel prices, compared with 2005 to 2015 prices, BMI advised.
Bank of America Merrill Lynch (BofAML) global commodity research analysts characterise the nickel market as seeing a rebalancing, as supply growth slows. The Philippines has become a key supplier of ores to China's nickel producers, with BofAML noting that environmental audits could lead to production losses.
According to BofAML analysts, Indonesia's export ban in 2014 became a significant challenge to China's nickel pig-iron industry. This had been mirrored by nickel pig-iron output, which had fallen by almost 200 000 t, or 10% of total global supply from peak output levels.
Against these headwinds, nickel pig-iron producers had been working hard to put themselves on a more sustainable footing. Replacing higher-cost blast furnaces with electric furnaces has been one of the measures, while investing in Indonesia has been another. In addition, Chinese producers had been sourcing most of their feedstock from the Philippines, whose mines accounted for 24% of global nickel output, BofAML advise.
ALUMINIUM: LOWER FOR LONGER
BMI also report that the price of aluminium is in for a longer low-price cycle than expected.
BMI forecast that aluminium prices will average $1 600/t in 2016, representing the lowest annual low in over a decade, and stabilise thereafter as the market slowly tightens.
The market research firm expect three-month LME aluminium prices to hit lows around $1 400/t, as the metal continues to stabilise in 2016, supported by the winding down of the US dollar bull run and capacity cuts by major producers.
“We expect aluminium to continue to trade between $1 500/t to $1 700/t over the coming months, averaging $1 600/t over the year. Our forecast implies a relatively neutral near-term view, with spot prices on July 13 at $1 670/t.
“On the one hand, US dollar weakness will support a recovery in metal prices, while the beginning of a new Chinese yuan bear market will keep a lid on prices over the coming quarters,” BMI state.
High-frequency data indicate that the global aluminium market is slowly tightening, despite the pace of tightening slowing, advise the firm. For instance, in H116, the average spread between the LME aluminium cash and three-month price narrowed to negative $5.5/t, compared with an average of negative $16.7/t in the first half of 2015. This indicates that the aluminium market is inching towards backwardation.
In the long term, BMI maintained its aluminium price forecast, with prices averaging $1 600/t and $1 625/t in 2016 and 2017, respectively, indicating an improving but beleaguered market.
“Beyond 2017, we expect aluminium prices to climb to an annual average price of only $1 750/t by 2020,” BMI said, pointing out that aluminium, along with other industrial metals, will experience a price stabilisation, rather than recovery, over the next few years, as slowing global demand growth leaves significant amounts of spare production capacity.