RBC's view on the nickel price as follows:BASE METALSPRICES...

RBC's view on the nickel price as follows:

BASE METALS
PRICES VULNERABLE TO VOLATILITY
RBC looks for $14/lb nickel, flat inventories, 13.2% growth in ‘08
In their latest forecasts, Canada’s RBC Capital Markets forecasts that the “nickel market will remain very tight,” despite roughly balanced inventories.

Author: Dorothy Kosich
Posted: Monday , 31 Mar 2008

RENO, NV -

RBC Capital Markets forecasts a 13.2% rebound in nickel demand growth this year, along with an average price of $14 per pound.

In their recently published research, analysts Fraser Phillips, Adam Schatzker, and associates Robin Kozar and Jamie Riff noted that "investment demand once again played a major role in pushing prices higher in Q1/08, leaving them vulnerable to increased volatility."

RBC Capital Markets' long-term nickel production cost estimate for this year is an average of $5.25/lb.

Despite the build-up of inventories due to stainless steel destocking, RBC believes that "the nickel market remains very tight," although analysts suggested "nickel production in 2008 will leave the market roughly balanced and inventories essentially unchanged for the year as a whole."

By 2012, RBC advised that production increases at existing mines and new projects will supply an additional 689,000 tonnes of new supply. Nevertheless, the analysts warned, "The increased impact of technological failure and delay at any one of these projects will consequently be significant for the overall supply/demand balance."

In their analysis, RBC noted that "nickel prices are not behaving consistently with the historic inventory price relationship. Despite inventories having risen well above the critical level, prices have not fallen back below $10/lb as would be expected." The analysts estimated total inventories to be 8.6 weeks of consumption as of March 24, "well above the all time low of 3.5 weeks in mid-2006, and the critical level of 6 weeks."

The analysts predicted that LME nickel inventories will decline during the second quarter of this year as stainless steel production rebounds. "However, our forecast growth in nickel production in 2008 will leave the market roughly balanced and inventories unchanged for the year as a whole."

They forecast that nickel inventories will remain relatively flat this year and in 2009 "before rising dramatically beginning in 2010" as new supplies come on line.

In their latest report, RBC stands by its forecast of global growth rates of 4.5% in annual Western World nickel consumption. Chinese nickel consumption growth has average 14% yearly since 1986, according to the analysts. Worldwide nickel demand growth is predicted to be 13.2% this year, decreasing to 8.1% in 2009, and 7.2% in 2010, before falling back to the average 4.5% growth rate in 2011 and 2012.

RBC's analysis asserts that former Eastern Bloc nations are becoming an increasingly important supply of nickel concentrates, "which is a reflection of less stringent environmental laws and lower cost structure." Meanwhile, RBC suggests that increased capacity in the Western World "will rely on the technical feasibility of hydro-metallurgical processes, such as Activox."

"Compared to laterites, the pyro-metallurgical treatment of nickel concentrates is less challenging technically, but more challenging environmentally. Consequently, recent growth capacity has come in the former Eastern Bloc, specifically, China." Nevertheless, RBC found the vast majority of production growth is expected to come from laterites in Latin America, Oceania, and Africa-Madagascar."