Unforeseen Circumstances Could Rattle Up Nickel Forecasts in 2015

Submitted by Mai Bantog as part of our contributors program.

Unforeseen Circumstances Could Rattle Up Nickel Forecasts in 2015

Commodity analysts routinely spend the last couple of months of a year forecasting the movement of a whole range of agricultural and industrial commodities. Brokers and operators, in turn, buy commodities that look good based on expert forecasts.

But even if investors follow analysts’ recommendations to the letter, many of them are still bound to post losses at the end of the year due to unforeseen circumstances that shook up the market during the course of the year. According to Reuters, “Only copper and, to a lesser extent, zinc have performed anywhere close to script, but even that statement comes with plenty of caveats.”

That is not to say that specialists should be blamed for their predictions, since commodity forecasting is a tricky business. 2014 was plagued with many unexpected developments that debunked earlier analyst predictions, such as the production quota cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC) for its members, thereby driving crude oil prices down by nearly 50 percent and pulling down commodity prices in the process.

Though analysts considered the Indonesian export ban enacted at the start of 2014 in their forecasts, many had not anticipated that nickel’s rally would fizzle out by the end of May. This is largely due to the Philippines stepping up its production of nickel ore in order to meet China’s demands, which also decreased by the end of May. But what really drove the nickel prices down was the Qingdao scandal—the large scale illegal practice of tendering same inventories of imported industrial raw materials and finished products as bank collateral.

There were also other pieces of unanticipated news that made an impact on the nickel sector. For instance, the Philippines also contemplated a similar ore ban as Indonesia, thus providing an unexpected boost for the ailing nickel by the end of summer. Also, BHP Billiton’s Western Australian Nickel division also had plans of selling Nickel West, but because of lack of buyers, the company announced in November that it would keep Nickel West as a non-core asset in its portfolio.

Many experts and analysts forecast nickel to be largely positive this year, expecting nickel to fall into deficit by the second quarter of 2015. “The big story here is that it’s a supply story; the export ban of ore in Indonesia will lead to supply deficit in 2015,” said Derek Burleton from the TD Bank Group. Scotiabank’s Patricia Mohr has a similar outlook, saying that nickel’s price is expected to soar “once nickel pig iron plants in China have used up their inventory on hand—forcing Chinese stainless steel producers to turn to more costly imports of FeNi and nickel cathode.”

But like in 2014, forecasts should be taken with a grain of salt as there might be other market movers aside from what was predicted by analysts. For instance, Indonesia’s facilities for making refined nickel might progress faster than expected, enabling it to contribute to the nickel market soon. Nickel mining projects might also start production, such as the Kun-Manie flagship project of Amur Minerals Corporation (OTC: AMMCF). The project is awaiting final authorization from Russian Prime Minister Dmitry Medvedev before getting the go signal to start mining. Once production starts for Amur Minerals, it can create startling effects in the price of nickel in the market.