BMO Sees Long-term Potential for 'Strong' Nickel Price Recovery

BMO Capital Markets recently released its Q3 2015 Commodity Canvas report, and though it has revised down its medium-term forecast for nickel, longer term it anticipates “a strong price recovery if/when the market moves back to ‘risk on’ mode.”
The firm states that though it now sees the metal’s price averaging US$6.21 per pound in 2015 (down from $7.01 previously), it’s still calling for a “slight deficit” for the year. Similarly, while it now expects a nickel price of $7.50 in 2016 (lower than the $10.50 it predicted previously), it sees the market remaining balanced that year.
Even longer term, the picture is much the same. BMO anticipates a nickel price of $7.25 in 2017 and $8 in 2018; earlier it had predicted a nickel price of $11 in both years.
That might sound negative, but as mentioned, the firm believes that if the market moves back into “risk on” mode later down the line, the nickel price will enjoy a strong recovery. The firm explains that because the nickel market is “smaller and more illiquid than others,” there is the potential for “much higher volatility.” And while recently that volatility has resulted in downward motion, that won’t necessarily be the case moving forward.
BMO also anticipates price upside for uranium, zinc and palladium, noting that all four have recently put on strong price performances in the face of “forecasts for undersupplied markets.”

More nickel price forecasts

Unfortunately for nickel market participants, other firms are a little more wary about the nickel price than BMO.
Last month, Morgan Stanley (NYSE:MS) cut its nickel price forecasts for the second half of 2015, reducing its Q3 outlook by 12 percent, to $13,228 per tonne, and its Q4 outlook by 10 percent, to $13,448 per tonne. The firm sees “a softer global growth outlook” reducing demand for the metal from stainless steel producers.
Similarly, JPMorgan Chase (NYSE:JPM) has said it would be “more comfortable with $10,000 nickel” than it was when the metal was at $17,000 per tonne. It’s also concerned about stainless steel demand, which it said was “underwhelming” during Q2. Meanwhile, Citi has commented, “[w]e now see little prospect of a sustainable nickel price or stainless stocking upturn ahead of the July/August holiday period.”
Most recently, Haywood Securities updated its nickel price outlook, revising its 2015 estimate down to $6 from $7. For 2016, the firm sees the nickel price at $7 (down from $8 predicted previously), while in 2017 it anticipates a price of $8 (down from $9). For 2018, 2019 and 2020, Haywood has left its nickel price outlook flat at $9.
Given those forecasts, it’s refreshing to keep BMO’s comments of higher price potential for nickel in mind. Investors and companies in the space will no doubt be watching carefully to see how the supply/demand situation for the metal develops.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
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