London 12/07/2016 - Supply-side issues have prompted Goldman Sachs to revise its price forecasts for nickel and zinc.
Temporary closures of nickel operations in the Philippines are assumed after Manila - China's largest source of nickel ore since Indonesia banned the export of unprocessed ore in 2014 - announced an audit all mines in the country while suspending the approval of new mining projects.
Nickel reacted by climbing to fresh October highs today of $10,435 per tonne on the LME. Earlier this year, it was at pre-financial-crisis lows of $7,625.Golman Sachs now expects nickel to rise to $12,000 per tonne in the next six months.
The result of the audit will be critical to nickel's outlook - the country's ore provides for as much as 20 percent of global annual nickel supply.
Meanwhile, recoverable nickel content in ore stockpiles in China is an estimated two or three months of annual average Philippine supply for which there appears to be no alternative, Goldman Sachs said
"Our baseline scenario is that a quarter of existing nickel mine output is lost from the market for the next six months. Indeed, to the degree that some mines remain operational, they may be able to ramp up to partly offset losses from mines that are suspended," it said.
The also bank lifted its three-month price forecast to $11,000 from $8,500 and its 12-month forecast to $10,000, also from $8,500 previously.
Zinc is also set to benefit from supply issues but the move will be temporary - Goldman Sachs expect more operations to come online once prices push higher.
The bank lifted its six-month price forecast by 28 percent to $2,500, a level that should be enough to prompt a sufficient global supply response. Consequently, it revised its 12-month forecast lower to $2,000 from $2,100.
"We believe there is no shortage of zinc globally, and given a major supply response is highly likely at higher prices, we recommend producers use the upcoming period of higher prices to put longer-term hedges in place," it said.
LME zinc was last trading at $2,189, around 13-month highs.
"Though zinc prices have risen sharply already, we are seeing little sign of a sufficient mine supply response, evidenced by treatment charges continuing to decline sharply both inside and outside of China and the fact that a substantial portion of global smelters continue to lose cash," Goldman Sachs said.
The estimated deficit is proving harder to fill because demand growth is increasing and there has been a lack of Chinese mine response.
In other metals, the bank forecast a new three-month aluminium price of $1,550 per tonne, up on the previous $1,450. It raised its six-month forecast by $100 to $1,500 while its 12-month forecast by $150 also to $1,500.
Still, these are lower than current prices - the lightweight metal was last at $1,667.
Its copper forecast was unchanged at $4,500 over three months, $4,200 over six months and $4,000 over 12 months - the bank expect producers to face a tough two years, with global demand growth to slow gradually while China shifts from an investment-led growth model.
"While stronger demand growth has resulted in us lowering our 2016 surplus forecast to 380,000 tonnes, increased confidence in the delivery of supply in second half of 2016 and 2017 leads us to increase our 2017 and 2018 surplus forecasts to around 800,000 tonnes," Goldman Sachs said.
(Editing by Mark Shaw)