A wild ride ahead for nickel price?

Delegates at the final day of the Australian Nickel Conference in Perth today got a message that was comforting to many but may not sit well with those who are high cost nickel producers.

PERTH -

A research analyst for Alto Capital, Carey Smith told the Australian Nickel Conference today that nickel could trade between US$8,500 and US$17,000 a tonne over the next few years.

This would be a result of unwinding of global stimulus packages that have a negative impact on resources-based commodities.

Smith, said that while the worst of the global financial crisis appears over, challenges still abound.

"United States and European growth can be expected to be sluggish over the next 12 months as demand for commodities eases," he said.

"The current commodity prices - including nickel in excess of US$19,000/tonne - cannot be justified by current supply and demand fundamentals.

"We should expect an easing to a low of around U$S11,000 a tonne in 2011 - still a good price - before recovering slightly to around US$14,000 per tonne by calendar 2014.

"While the prices will ease, mid-cap Australian nickel producers are trading around fair value and should remain strong at least for another few months."

Smith said downward price pressure would also result from current global stockpiles of 35 days of consumption compared to historic supply stocks of 10 days.

"This is the highest stockpile level since the fall of the Soviet Union in December 1991 and there are additional but unknown quantities being held in China and Russia.

"Price easing will also be fuelled by the fact the spate of mine closures globally has not been enough yet to offset weak nickel demand and the winding back of globally stimulus packages estimated in size at a total of $US7,000 million.

"To put those stimulus packages in perspective, that is over nine times the size of the Australian economy and enough to acquire the whole pool of combined Australian mid-cap nickel producers.

"With this stimulus momentum removed, any increase in global consumption will be dependent on continuing growth in Asia and assuming that global recession does not double dip into a global depression."

China - which accounts for 50% of global steel production - will be pivotal but it needs US and European consumers to start spending again, increasing its import levels."