The world nickel market could witness a supply deficit as early as 2003 owing to limited new sources of supply, representatives from world nickel miners said.
But Salomon Smith Barney's global commodity analyst Alan Heap is more cautious, forecasting the global market's demand and supply to be close to balance in 2003, with a deficit surfacing only in 2004.
Bruce Dumville, president of Falconbridge Nouvelle Caledonie SAS, said the Canadian parent is forecasting a market deficit as early as next year.
"I believe we are projecting a shortfall of 10,000-15,000 tons next year," he told delegates at the 5th Annual World Nickel Congress.
Falconbridge, a Canadian diversified base metals producer and one of the world's four largest nickel producers, is trying to develop its Koniambo nickel project in New Caledonia, which targets to produce 60,000 tons of nickel in ferro-nickel a year.
"Koniambo is scheduled to start operating in 2007, after Falconbridge wraps up a bankable feasibility study in the third quarter of calendar 2003," said Dumville. The project's total capital cost is estimated to reach $1.57 billion, he added.
Another representative from New Caledonia agreed that the nickel market will be tight in the next two years.
"We find a very high risk of market deficit in 2003 and 2004," said Luc Timonnier, head of the purchasing department at Eramet-SLN.
Noting that significant increases in production capacity will only come on stream by 2005 and 2006, and that greenfield projects are prone to delays, 2005's outlook will depend on how well these projects progress on schedule, he said.
"Due to the size of the projects, each delay has a large impact on the market," he said.
SLN, or Societe Le Nickel, is the New Caledonian subsidiary of French mining group Eramet SA
Eramet-SLN itself is planning to raise the production of its Tiebaghi mine in northwestern New Caledonia to over 1 million tons a year in 2006 from around 250,000 tons in 2000, said Timonnier.
It is also progressing with its plan to raise production at its Doniambo nickel smelter to 75,000 tons a year of ferronickel and nickel matte.
The French overseas territory of New Caledonia in the South Pacific holds about 11 percent of the world's proven nickel resources in land-based deposits, according to the International Nickel Study Group.
Although more cautious, Salomon's Heap said he has raised his price forecast following nickel's bullish performance this year.
With the nickel price having rallied by over 20 percent from the beginning of this year, Salomon now forecasts this year's nickel cash price on the London Metal Exchange to average $3 a pound, compared to its earlier forecast of $2.50/lb, Heap said.
"Nickel has been the star performer of the base metals complex," he said, noting that unlike most of the other base metals which failed to hold on to their gains earlier this year, nickel appears to be able to sustain that rally.
Nickel prices have been supported by limited increases in mine supply, low inventories and restricted supply of nickel scrap, said Heap.
On the demand side, stainless steel production, which accounts for about two-thirds of the world's nickel consumption, is strong, he added.
These trends are likely to help push the global nickel market toward a supply deficit in 2004, as sources of new supply are few, while stainless steel production stays high.
"Over the next couple of years, there are no major greenfield expansions" in nickel, he said.
Stainless steel production is likely to stay high even as prices are starting to fall because producers are reluctant to cut production and concede market share in any downturn, he said.
But the global nickel market will only be close to balance in 2003, if overall global consumption grew 2-3 percent next year to about 1.2 million tons, while nickel supply stays tight at around the same level, said Heap.
Then in 2004, the global nickel market will move into deficit, of about 20,000 metric tons, as demand picks up while supply growth stays subdued, he said.
But subsequently, the start-up of new production, for instance, Canada's Inco Ltd.'s (N) Goro nickel project in New Caledonia, will contribute to a supply surplus of over 60,000 tons in 2005, he said.
Goro Nickel SA, a subsidiary of Inco, said it expects the plant to start producing nickel and cobalt by late 2004 or early 2005, and anticipates the ramp-up to full annual production of 55,000 tons of nickel and 4,500 tons of cobalt in a year, Goro Nickel's Managing Director Pierre Alla told delegates at the same conference.
But Russia's Norilsk Nickel could spoil the party in 2004, said Heap.
Having committed 60,000 tons of nickel as collateral with a syndicate of banks, it would be fair to assume that if prices spiked to US$4/lb, some of that stockpile could be liquidated, he added.
Another factor that could cloud nickel's bullish outlook is the possibility of surplus stainless steel production, said Heap.
Noting that current stainless steel production implied an apparent consumption of 8 percent, which is "way out of wack with global economic activity," that could mean producers are building stocks, possibly leading prices to fall, he said. Dow JonesGet curated news on YOUR industry.
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