Nickel to Rebound in 2010, Analyst Predicts

SHANGHAI, Oct. 14 -- Nickel prices will likely rally going into 2010 as the market switches into a deficit, Societe Generale SA metals analyst David Wilson said on Tuesday.

    Production cuts and delays to mine projects have helped tighten the market, while stainless steel output is recovering and inventories of ferronickel are low, Wilson said at a Societe Generale seminar in London.

    "We do feel prices are well supported (and) we don't see a downside for the moment."

    Wilson forecasts that nickel prices will average $20,700 a metric ton in 2010, up from an expected average of around $15,000/ton in 2009.

    World stainless steel production will likely rebound to 10 million tons from 8.65 million tons this year, as housing and automotive data, as well as many leading economic indicators, point to improving demand for industrial metals such as nickel, Wilson said.

    Although inventory levels at the London Metal Exchange are at their highest since 1995, inventories of ferronickel, a metal with lower nickel content, are nearly depleted, Wilson said. That should force consumers to withdraw stocks from the LME starting from this quarter, he added.

    Wilson estimated about 200,000 tons of nickel will be lost because of production cuts, strikes and delays to mine projects in 2009, causing mine output to fall 7.5% on the year.

    More than 3,000 Steelworkers in Sudbury and Port Colbourne who worked for Vale Inco have been on strike since July. Vale Inco workers in Voisey's Bay, NL, struck Aug. 1.

    One factor that will likely prevent any big rallies will be China's output of nickel pig iron, a low-quality nickel metal, Wilson said.

    The country will likely produce 130,000 tons next year and could quickly increase production as their production costs have declined to around $12,000-$13,000/ton, he said.

    "Significant rallies are going to be difficult."

    (Source: Dow Jones)