Morgan Stanley slashes nickel forecasts

(Reuters) – Morgan Stanley slashed its nickel price forecasts for the second half of the year on Tuesday as a softer global growth outlook curbs demand from stainless steel producers, making it the third bank this week to downgrade prospects for the metal.

Nickel prices have been particularly hard hit among commodities, as 70 percent of refined metal goes into the stainless steel sector where producers often sell down stocks aggressively on signs of worsening economic growth, it said.

An industry debate in 2014 about bullish supply side risks from Indonesian export ban was passing, with the market focus now on buckling stainless steel demand growth, it said.

However, further downside appeared limited, given prices were well down the cost curve for nickel producers, it said.

The bank cut its third quarter 2015 nickel price forecast by 12 pct to $13,228 a tonne and its fourth quarter outlook by 10 pct to $13,448 a tonne.

LME nickel traded at $12,625 a tonne on Tuesday. Morgan Stanley expects nickel demand to grow at 1 percent this year.

Citi said in a note that week that weak nickel prices since last year have effectively removed any incentive for stainless steel consumers to rebuild inventories.

“We now see little prospect of a sustainable nickel price or stainless stocking upturn ahead of the July/August holiday period,” it said.

JP Morgan on Monday noted “underwhelming second quarter stainless steel demand,” and said that it was “more comfortable with $10,000 nickel” than it was with prices at $17,000 a tonne.

Weak demand has thrown cold water over any hopes for a repeat of a 50 percent rally in nickel to more than $21,000 in May last year after Indonesia banned ore exports in January.

Traders had bet that China would be forced to consume more nickel, as nickel pig iron, a cheaper feedstock made primarily from Indonesian ore, dried up.

But the Philippines ramped up exports to fill the gap, and now Indonesia’s nascent NPI industry has already begun exports.

Shipments began in April from China’s Tsingshan NPI refinery, while Morgan Stanley expects Indonesia to produce 22,000 tonnes of NPI this year and 31,000 tonnes in 2016. This is still small, compared to more than 500,000 tonnes at China’s NPI output peak.

The bank also cut its platinum and hard coking coal forecasts and raised its aluminium forecast for the fourth quarter.

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