LME nickel prices had rallied by almost 25% from their January low. This rally, compared with Macquarie's expectations in its February report that prices would head towards $20,000/mt by the end of 2014, is "well ahead of where we would have predicted the price to be by now."

The Indonesian ban will lead to a small international supply deficit this year and then enormous deficits in 2015-18 if it remains in place, said Macquarie, which had previously forecast a surplus for this year. The deficit has been brought forward to this year because of better-than-expected demand growth, particularly outside China as rising nickel and stainless steel prices have resulted in restocking activity, coupled with faster declines in Chinese nickel pig iron output, it said.

The potential to replace Indonesian high-grade ore with others nickel ores is extremely limited, while NPI production in Indonesia is also not coming on stream quick enough, the report noted. Chinese stainless producer Tsingshan has started construction of a 30,000 mt/year plant in the country which will start up at end-2014 at the very earliest and other producers are way behind Tsingshan, it said. “We expect only a slow ramp up and even on what we consider optimistic assumptions, global NPI production will not regain 2014 levels even by 2020!” it added.

The only thing preventing another major spike in nickel prices from 2015 onward appears to be a possible reversal of the Indonesian exports ban, but currently there is no sign of Indonesia reversing its policies, it said.

© Platts