June 7 (Bloomberg) -- Nickel prices will rise in 2007 and 2008 as
demand, led by increased production of stainless steel in China, outpaces
supply, Goldman Sachs said.
Nickel prices may average $7.42 a pound this year, Goldman Sachs JBWere
Pty. analysts Malcolm Southwood, Paul Gray and Marc Bonter said in a
report yesterday. Forecasts for next year and 2008 were raised to $7.30
and $8.10. Previous forecasts were not given, and the report didn't
specify if the forecasts were for the spot market or three-month futures
prices.
Surging demand from consumers and investors amid falling stockpiles and
supply disruptions has spurred a three-year rally in the prices of many
commodities. Nickel for delivery in three months on the London Metal
Exchange has risen 53 percent this year, reaching a record $23,050 a
metric ton on May 26, equivalent to $10.46 a pound. Prices have since
slipped 11 percent to $20,625 at 9:35 a.m. London time today.
``We now envisage considerably stronger nickel market fundamentals in
2007 and 2008 than we had previously forecast,'' Southwood, Gray and
Bonter said. Nickel, as well as copper and zinc, are ``expected to
experience very tight, or tightening, fundamentals over at least the next
two years.''
Nickel is added to steel to make it rust-proof. China's stainless steel
production will climb 32 percent to 4.4 million tons this year, and 33
percent next year, Southwood and colleagues said. Output will increase by
a further 23 percent in 2008, 20 percent in 2009 and 16 percent in 2010,
they said.
At the same time, nickel supplies will be tight, mainly because Inco
Ltd.'s Goro project in New Caledonia and BHP Billiton's Ravensthorpe
project in Australia would begin production later than expected, the
analysts forecast.
Goro, Ravensthorpe
The first output from Goro may be in the fourth quarter of 2007, while
Ravensthorpe will begin production in the second half of 2008, with
``shallow ramp-up profiles for both projects,'' the report said.
Still, nickel prices may stabilize in the second half of this year as
companies run down inventories of both nickel and stainless steel, the
three analysts forecast.
Rapid growth in Chinese stainless steel production could also push
nickel prices lower in the coming months as other countries would produce
less stainless steel, they said.
Nickel may average ``just'' $6.40 a pound in the fourth quarter this
year, the report said. Three-month nickel futures prices on the LME
averaged $5.78 a pound during the fourth- quarter last year, according to
Bloomberg data.
