Citigroup Slashes 2009 Nickel Price Forecast on Lower Demand

By Glenys Sim

Sept. 29 (Bloomberg) -- Citigroup Inc. slashed its 2009 nickel price forecast by 40 percent as new mines will open when demand from stainless steelmakers drop.

The price may average $6 a pound ($13,230 a metric ton) next year, down from an earlier estimate of $10 a pound, analysts Alan Heap and Alex Tonks said today in a report. A global surplus will widen by almost five times in the next two years, they said.

Nickel, mostly used in making rustproof steel, has fallen 48 percent in the past year, as steelmakers use inventories and make products with less metal content. China, the largest consumer of nickel, will buy less this year, an industry official said Sept. 26.

``Demand is under continued pressure from substitution, in particular, substitution of high nickel stainless alloys with ferritic alloys of a lower nickel content or no nickel at all,'' Heap and Tonks said.

The metal for immediate delivery on the London Metal Exchange fell 0.6 percent to close at $16,775 a ton Sept. 26, and averaged $24,549.70 a ton this year.

Shanxi Taigang Stainless Steel Co. and Baoshan Iron & Steel Co., the biggest Chinese makers, are making ferritic products to replace more than 40 percent of their 300 series products, China's Special Steel Enterprises Association said last week. Ferritic products contain little nickel compared with the 300 series products, which typically contain 8 percent nickel.

Global Surplus

Nickel production this year will exceed consumption by about 10,500 tons, Citigroup said. The surplus will widen to 42,500 tons in 2009 and 51,000 tons in 2010 on new supply from Cia. Vale do Rio Doce's Goro project and Onca Puma mine, and BHP Billiton Ltd's Ravensthorpe project, the bank said.

The bank raised its longer-term forecast to $8 a pound from $6.50 in 2011 because of rising costs.

``The short term outlook for nickel prices is bleak'' because stainless steel production has remained at weak levels, Macquarie Group Ltd. said today in a report. Unprofitable producers have cut output this year, though a small surplus of about 6,000 tons remains, analysts including Jim Lennon wrote in the report.

The Australian bank expects an excess of 16,000 tons in 2009 and 35,000 tons in 2010. The bank forecasts prices at $8.63 a pound in 2009, $8.50 a pound in 2010 and $7 a pound in 2011.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net