See Alan Heap's (Global Commodities Strategist) note, "Nickel - The Wildcard" www.citigroupgeo.com/pdf/SGL00622.pdf. He argues, for nickel prices to see meaningful upside over the next few years 2 factors are needed: 1) The failure of all leaching projects 2) A recovery in austenitic steel production.
Note, laterites account for 3/4 of the growth in nickel supply. "The potential economic failure of laterite leach technology is a source of risk we have long highlighted. Ravensthorpe closure whilst co-incident with a depressed nickel market reflects design failure, even after several capital cost escalations. This raises significant questions over other large scale acid leach operations."
Price potential - base case assumption for nickel remains unch @ $4.8/lb and $5/lb for '09/'10 respectively. However the wildcard is if leaching is a failure and demand recovers (or austenic regain mktshare) nickel prices could reach $10/lb in the latter year of our fcsts.
Meanwhile, Erindra (Indo Resource Analyst) argues, while he favors INCO vs. ANTM (only revs from gold, nickel ops still in red) amongst metal plays, he thinks the shares have "overshot", and is a sell on fundamentals. He's a INCO buyer on dips @ Rp3,000 OB which places the stk @ mid-cycle valuation. www.citigroupgeo.com/pdf/SAP27376.pdf
We've been witnessing a shift into cyclicals in Indo, but given there will be more vol from the pol (itics), don't think it's necessary to chase at unjustifiable prices. However, patience is the order of the day, as momentum to sustain a bit longer (SEE NASTY - Running Bulls of Pamplona). Having said that, for nickel and much of commodities the "worst is behind us", and recovery in demand is more optimistic.
Finally, scuttlebutt on the ground reveals that the Chinese are back in full force to secure resource concessions, esp gold and copper. The base metal rebound has been underpinned by copper. However, Alan Heap argues the necessary ingredients for a sustainable rally are missing www.citigroupgeo.com/pdf/SGL00623.pdf. Demand in China is improving but continues to plummet elsewhere. A one legged table is always unstable. But copper will lead any recovery. We expect copper prices to fall from current levels, but not to $1.25 as previously. We now expect prices to avg $1.5 in 2H09 ans $1.65 in '10.
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