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Nickel’s roller-coaster ride this year isn’t over, according to Goldman Sachs Group Inc., which expects the highest prices in two years to prompt expanded capacity for smelting and discourage purchases by steelmakers.
Prices plunged 11 percent the previous two days, and probably will fall 15 percent further in 12 months to $16,000 a metric ton, Goldman forecasts. Nickel had surged this year following a January ban on ore exports by Indonesia, the world’s largest supplier from mines, and as threats increased for economic sanctions against Russia, home to OAO GMK Norilsk Nickel, the biggest producer of refined metal.
Instead, exchange-tracked inventories rose, prompting some investors to judge the rally was exaggerated. China will “aggressively” build blast-furnace capacity in Indonesia to produce nickel pig iron, a low-grade alternative to refined metal, Goldman said in a report dated May 14 and e-mailed yesterday. Waning demand for the metal from makers of stainless steel is another “downside risk” for prices, the bank said.
“High prices will incentivize a substantial build out of blast furnace and other smelting capacity in Indonesia,” Goldman analysts Roger Yuan, Max Layton and Jeffrey Currie wrote in the report. “Demand destruction could also help to balance the global market in 2015 if the ban is not relaxed during the smelter construction period.”
Nickel for delivery in three months on the London Metal Exchange rose 0.7 percent to $18,888 at 12:36 p.m. in Tokyo, trimming its weekly drop to 5.1 percent, the biggest such loss since February 2013. On May 13, the price reached $21,625, the highest since February 2012.
Processing Plants
With construction taking about 12 months, the effects of “de-bottlenecking” will be seen in mid-2015, the Goldman analysts wrote. Nine nickel-processing plants may be completed this year in Indonesia, and as many as 40 more by 2017, according to the Energy and Mineral Resources Ministry. The country imposed the ban in a bid to transform the mineral industry away from raw-ore sales into higher-value processed products.
This year’s rally could shrink profits in the stainless steel industry, encouraging substitution, Goldman said. A 5 percent substitution would be equal to a reduction of as much as 150,000 tons of nickel demand, the bank estimates.
While Goldman expects prices to fall in 12 months, the bank predicts a gain to $22,000 in three months and six months, as the risk from demand destruction is in the “medium term,” the analysts said.
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