Metal Prospects Nickel Market Outlook – Third Quarter 2014...

Metal Prospects Nickel Market Outlook – Third Quarter 2014 Demand  Global nickel consumption grew by 7.8% in the first three months of 2014. We forecast global growth of 9.0% in 2014, 9.1% in 2015, 9.3% in 2016, and then forecast trend growth of a little over 5.0% in 2017 and 2018. However, we believe that in 2017 and 2018 growth could be constrained by a lack of supply and we have reduced our forecasts accordingly. Supply  Global refined production grew by 10.9% in 2013, following increases of 9.5% in 2010, 11.7% in 2011, and 9.0% in 2012. The strong growth in refined production over the past four years was due to increased NPI production. The looming Indonesian ore export ban fuelled the growth as ore inventories were built ahead of the ban’s implementation. We forecast a decline in production of 0.5% in 2014 with the implementation of the ban, then growth of 1.7% in 2015, 13.9% in 2016, and 6.3% in 2017 with the ramp-up of the laterite projects and start-up of NPI capacity in Indonesia. Market Balance and Inventories  Following a surplus of 26,000 tonnes in the first five months of 2014, we expect the market to move into deficit in the second half in response to falling NPI production, resulting in a balanced market for 2014 as a whole. We expect the market to experience a large deficit in 2015, resulting in a sharp drawdown in inventories. The start-up of new NPI capacity in Indonesia in 2016 and 2017 will not be enough to meet our forecast growth in demand and we expect the market to remain in deficit throughout our forecast period. We expect inventories to be drawn down below critical levels by 2018, supporting strong pricing. Price Forecasts  The nickel price has outperformed thus far in 2014, up 32% year-to-date in response to the Indonesian export ban. Declining Chinese ore inventories have yet to translate into a significant decline in LME inventories and the price appears to be a little ahead of the fundamentals as a result. But with the Indonesian export ban looking increasingly likely to remain in effect, we believe that the downside risk from current levels is limited and we believe significant potential upside remains. We forecast an average price of $8.50/lb in 2014, $11.00/lb in 2015, $12.00/lb in 2016, $14.00/lb in 2017, and $15.00/lb in 2018. Our long-term price forecast is $9.50/lb in 2014 US dollars.

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