It took 18 months of relentless price decline to break Queensland Nickel, a sign the re balance between supply and demand may finally come to pass and the worst performing base metal of 2015 may find some price relief.
Where iron ore and oil producers vow to keep pumping their product into the market, despite a 20 per cent slide in 2016 alone, nickel prices may stand a chance of recovering as plant closures restrict the supply side.
"The market will remain skeptical and will in our view want tangible evidence of these supply cuts," said Grant Spore, research analyst at Deutsche Bank. "This may take a few months, but we continue to think that nickel is one metal which could see a supply driven price recovery in 2016."
Clive Palmer's nickel company went into voluntary administration last week, after announcing 237 job losses and having failed to secure a $35 million guarantee from the state government. The company was forced to significantly cut its purchases of feed from New Caledonia last year.
Brazilian firm Votorantim Group also announced the closure of its Niquelandia refinery as well this week, another casualty of the nickel price slide.
In December, BlackRock, the world's largest asset manager, questioned the nickel industry's failure to shut down unprofitable mines.
The nickel market "seems to be very, very depressed relative to the cost curve," said Evy Hambro, manager of BlackRock's $US3.1 billion World Mining Fund in December.
Glencore, of which BlackRock is fourth largest shareholder, has also flagged its Murrin Murrin mine in Western Australia may close.
"How much longer do you think we're going to see some of this production remain around before it's forced to be taken out of the market?" asked Mr Hambro.
At the end of 2015, two thirds of the nickel industry was loss making. AS LOW AS IT CAN GO?
2015 was supposed to be the year of the nickel price recovery.
After Indonesia, the world's largest producer of nickel ore, banned exports in 2014, nickel prices rocketed to a two-year-high and banks (read: Goldman Sachs) predicted global shortages in 2015.
But it turned out there was more than enough nickel to go around, mostly courtesy of supply from the Philippines. On the demand side, China's need for the ore slowed as it grappled with a flattening stainless steel industry.
The nickel price fell more than any other base metal on the London Metals Exchange in 2015.
Nickel will average $US12,250 a metric tonne in 2016, according to the median estimate of 16 analysts compiled by Bloomberg. That's a 49 per cent leap from Tuesday's close of $U8240 and is the biggest gain for base metals.
THE DEMAND RECOVERY
Nickel is mostly used in stainless steel and demand from China has been strong these past 10 years, with the ore used mainly in buildings and cars which tend to have higher nickel content than white goods and kitchen cutlery.
However, Chinese stainless steel output contracted by 2 per cent last year, and Deutsche Bank points to an import duty tariff imposed by the EU as a cause.
Any price recovery in nickel is dependent on an increase in Chinese demand, which may eventuate in 2016, partly driven by some restocking of stainless steel inventories.
"Even a modest recovery in nickel prices could drive some restocking which would be supportive of prices," said Mr Spore.
Ichi...
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