Comments made by Carey Smith, a research analyst at Alto Capital speaking at the Australian Nickel Conference were reported in Mineweb and made chilling reading for high cost nickel producers. Smith said the easing of monumental stimulus programs and the ongoing depressed demand in the developed countries were going to result in a further deterioration in nickel demand next year. From a current price of over $18,000 per metric ton, Smith said they expected prices to fall to a range between $8,500 and $17,000 a ton over the next few years as prices cannot be justified by current supply and demand fundamentals. Specifically Alto Capital are calling out $11,000 in 2011 rising to $14,000 by 2014.
On the supply side Smith said global stocks equivalent to 35 days are the highest since the fall of the Soviet Union in 1991 and there are additional but unknown quantities in Russia and China. Even with global stimulus packages estimated at $7 trillion, demand has failed to significantly pick up outside of China. And when these come to an end, demand is sure to slide further.
As we covered earlier this month, China’s Nickel Pig iron producers have come back into the market with a vengeance this year impacting China’s demand for refined metal and exacerbating the fall in demand. Some of the banks are predicting a period of re-stocking by distributors and end-users that have run down their stocks over the last 12 months but unless underlying end-user demand picks up this will be largely completed by the end of this year. Our straw poll of distributors suggests there is still a great deal of caution and many are continuing to live hand to mouth. Although we wouldn’t share Alto Capital’s bearish view, we do agree the large visible and invisible stocks are going to continue to weigh on prices and a return above $20,000 per ton is unlikely before 2011.