Thursday , 29 Sep (SMM) -- A boutique equities advisory company has forecast that the "new normal" in commodity markets will be "extreme volatility in prices" that will see the nickel price bounce around between US$17,500 and US$22,500 a tonne over the next four years.
Speaking in Perth on the first day of the 2011 Paydirt Australian Nickel Conference, the only annual business forum for the sector, Alto Capital Research Analyst, Mr Carey Smith, said the global economic uncertainty made price forecasting challenging.
"New projects due to come on stream will leave the market flush with nickel but nickel pig iron production should act as a price stabiliser," Mr Smith said.
"This stabilisation will reduce the likelihood of prices falling below US$15,000 a tonne for any extended periods, and, while some subdued prices can be expected over the next two years, those prices will still be above the long-term average. The market can then expect some lift from 2014 onwards.
"Alto believes global nickel consumption will be 1,540kt for calendar 2011 at average prices of US$22,500t (US$10.20/lb), marginally increasing in output to 1,700kt in 2015 at US$9.10lb that year but dipping in the interim as low as US$7.95 lb.
"All of these forecasts presume that the worldwide economy does not double dip into a global depression.
"However, global stainless steel production - a big consumer of nickel - saw Asia account for almost 65% of global production in the opening quarter of this year, a 40% hike from 2000.
"That quarter saw a record 8.4 million tonnes produced in that three month period, 10% higher than just a year prior.
"This was paralleled by a decrease in stockpiles and a reduction in days of consumption stockpiles from 44 days to 23 days - but significant new supply will hit the market next year."
Mr Smith said the pending two year oversupply period would result from the fact major projects had faced an average of two and a half year delays and instead of now coming to market over a well spread timeframe, the majority of new plant on line was being bunched into the next 12-18 months.
The eight lead projects, including the 39,000 tpa US$2.2 billion Ravensthorpe mine in Western Australia, would see US$23.7 billion worth of new production come on stream in this time.
This would inject an additional 366,000 tonnes of nickel into global markets, allowing for normal commissioning and ramp-up problems.