London 11/05/2016 - The nickel market will finally swing to a deficit in 2016, mainly via supply cuts, after years of over-supply, Macquarie senior commodities consultant Jim Lennon said.
Macquarie forecasts a 3.9-percent year-on-year fall in finished nickel production of 76,000 tonnes this year to 1.9 million tonnes, he told delegates at Metal Bulletin's nickel conference here on Wednesday.
On the supply side, many mines and producers that are struggling with negative cashflow will have to lower output or close completely due to the consistently low nickel price.
At the April 2016 average LME price of $8,853 per tonne, around 60 percent of the nickel industry was cash-flow negative, Lennon pointed out.
The cuts made to date are bigger than many realise since they come from smaller mines, Lennon noted, adding that Macquarie expects total cuts of this year of 197,000 tonnes.
"If the price doesn't recover, more cuts will come," he added.
Three-month nickel hit $7,550 on February 11, its lowest since 2003. It recently traded at $8,830 per tonne, up $120 on Tuesday's close.
On the demand side, Macquarie forecasts a significant recovery in nickel use in 2016, seeing growth of 4.4 percent due partially to stronger demand from China driven by recent stimulus measures.
China's stainless steel industry has made a remarkable recovery in March and April, which has been especially strong in high-nickel 300 series, Lennon said.
As well, the shortage of stainless steel scrap is also likely to boost world demand.
But while there is a chance that the market will be firmly in a deficit in 2016, price upside will be limited by the large inventory overhang, Lennon concluded.
(Editing by Mark Shaw)