Norilsk Nickel Raises Nickel Deficit Forecast for 2016

Norilsk Nickel, one of the world's largest nickel producers, raised its 2016 nickel deficit forecast by an additional 5,000 tonnes, due to a reduction in production capacity at large producers and a drop in nickel prices. The Russian company also predicts a sharp drop in the output of Chinese nickel pig iron. Nickel production outside of China is also forecast to experience a significant decline.

The latest metal forecast report published by Norilsk Nickel states that the nickel market will be balanced in 2015 and the global nickel deficit will rise to 60,000 tons in 2016. Whereas, an earlier forecast for Norilsk Nickel, presented in March this year, predicted a deficit of 20,000 metric tons and 55,000 tons for 2015 and 2016, respectively.

The slowdown in China's economic growth has pushed commodity prices down to several-year lows. Nickel prices are close to six-year lows. In addition, stocks of nickel on the London Metal Exchange (LME), which hit a record high of 470,000 tonnes in June this year, have dropped significantly since then. More than 60 percent of the world's nickel producers have production costs that are higher than the market price of the metal. This suggests that there is little chance of a further drop in nickel prices. In addition, the decline in metal inventories on the LME indicates the beginning of an improvement in market fundamentals, as noted in the report.

Depletion of mines in the Philippines could lead to a drop in Chinese production of nickel pig iron, which is seen as a cheaper replacement for refined nickel.

The report also predicts a palladium deficit in 2015. In addition, the deficit is likely to widen in 2016. Norilsk Nickel also predicts a moderate platinum deficit in the market over the next two years.