Home' Australian Resources and Investment : September 2015 Contents VOLUME 9 NUMBER 3 • Australian Resources and Investment • 3
this year. But it is loss-making at current
nickel spot prices, and higher prices are
needed to advance its discoveries.
Key nickel stocks, such as Western
Areas, Sirius Resources, Independence
Group and minnows Panoramic
Resources and Mincor, have mostly
done a good job of transforming their
operations to deal with a lower nickel
price, and are strongly leveraged to any
Moreover, Independence Group's
proposed $1.8 billion acquisition
this year with Sirius, which has the
highly promising Nova nickel project,
suggests that it believes the metal is
close to turning.
But it all depends on the nickel price.
The current price, lower than most
forecasters imagined, is weighing heavily
on sentiment towards nickel stocks. The
prospect of even lower nickel prices, and
the material risk to company earnings,
is sidelining investors.
Nickel fell nine per cent in the second
quarter of 2015. In its commodity
commentary, the World Bank said:
'Nickel prices fell ... as LME inventories
continued to climb to record levels. Weak
demand from the stainless steel sector
(which consumes about 70 per cent of
the world's re ned nickel), higher-than-
expected production of nickel pig iron in
China, and destocking of re ned nickel
contributed to the price decline'.
The report added: 'Indonesia's ore
export ban in January 2014 -- instituted
to encourage domestic processing --
looks set to tighten the market by 2016.
China has been drawing on its sizable
inventories built before the Indonesian
ban, and has increased lower-grade
ore imports from the Philippines. Once
China's inventories are drawn, the
market is expected to tighten, as the
Philippines cannot fully replace the
losses from Indonesia'.
Contrarians who can stomach
short-term volatility in the nickel price,
and who have a long-term investment
horizon, could see forecasts of tightening
global supply as a signal to buy. With
nickel trading near 10-year lows, plenty
of analysts and industry observers say
that a recovery is in sight, although
many have been too early with that call.
The key question is whether the bulk
of the damage to the nickel price and
sentiment has been done, and if nickel,
among the rst commodities to be hit in
the downturn, will be among the rst to
recover as demand improves and supply
Solid expected demand growth in
stainless steel, nickel's largest demand
driver, should support higher nickel prices
over the next ve years, while Indonesia's
transition from an export supplier of ores
to a nickel pig iron producer boosts the
supply case for nickel.
Moreover, base metals appear to have
better medium-term price prospects
than many other commodities.
Respected commodity forecaster CRU
expects base metal prices to lead a
broad commodity-price increase by
2019, with nickel near the top of the list.
As medium-term outlook improves,
short-term nickel forecasts are
The upturn in base metal prices in the
second quarter of 2015 was short-lived.
The consensus view was that nickel
stockpiles in China, a consequence of
the Indonesian export ban, had been
depleted and would support a higher
price. So far, that has not been the case,
and expectations that the nickel price is
about to turn higher have been dashed.
Nickel fell ve per cent in a day in
June, after bad economic and political
news from China and Greece spilled over
into commodity prices, and intensi ed
selling of resource stocks. Nickel was
down more than 30 per cent year to date
as Australian Resources & Investment
went to press.
Nickel brie y hit US$4.78 per pound
as the correction in Chinese shares
and fears about a Greek debt default
peaked in early July -- an incredible fall
from about US$13 per pound in early
2011. As global macroeconomic fears
subsided, nickel bounced to US$5.03 by
Prolonged nickel-price weakness
is confounding the experts. In June
investment bank UBS, forecast nickel
to hit US$8 per pound in 2016, and
most forecasters expect a considerably
higher nickel price in the next two years,
but ongoing price falls this year have
tempered their enthusiasm.
Goldman Sachs also sees nickel
prices rising by year's end, but has
lowered its forecasts. In a July report,
Goldman analysts wrote: 'We expect
supply curtailments and a modest
improvement in demand growth... nickel
has generally disappointed the market's
and our expectations for higher prices
over the past 12 months'.
Macquarie Group downgraded its
base metal price forecasts in late July
because of a lack of 'near-term catalysts'
to trigger a return to previous price
levels, and 'mediocre fundamentals'.
Macquarie had previously forecast
a US$8.05 nickel price in 2016, rising
to $US9.75 in 2017, and US$10.66 a
year later. It revised its 2016 forecast to
US$6.58, marginally lowered its 2017
forecast, and kept its 2018 and 2019
forecasts for nickel unchanged.
That led to signi cant cuts in
forecasts, for ASX-listed nickel stocks,
but the effect on pro ts for nickel
miners was more modest compared with
commodity-price revisions in copper,
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