Nickel was a long-time base metal star. For decades, it commanded a price well above copper, lead and zinc. In May 2007, it skyrocketed above $20/lb. Frequently classed as a strategic metal, with an envious annual growth rate around 4%, nickel is used abundantly in a host of alloys, including kitchen and medical equipment, mobile phones, power generation, jet engines and NiMH batteries. About two thirds of annual production flows into stainless steel production; it truly has been a star performer. Nickel has traditionally been mined from sulphide deposits; today, however, a range of new technologies allows extraction from abundant lateritic deposits like Sherritt’s Ambatovy project in Madagascar, or Vale’s Goro mine in New Caledonia. In 2005, China started processing lateritic ores from both Indonesia and the Philippines into a lower-cost nickel product called Nickel Pig Iron (NPI) which contains up to 13% nickel. It is used principally to make stainless steel. The ongoing switch to lateritic sources for pure nickel has presented challenges. It requires complex and expensive plants; frequently, mining is in highly untraditional locations. In January 2014, Indonesia surprised the mining world by announcing an export ban on raw ore, requiring down-steam processing within the country. The ban curtailed Indonesian exports of NPI ore to China and created an incentive to increase Philippine production as well as a drawdown of ore inventories. As a result, the Philippines was catapulted into being, by far, the world’s largest nickel producer. "By May next year, we'll have an installed capacity of 900,000 tonnes of nickel pig iron," Tsingshan Bintangdelapan Group CEO Alexander Barus said in a recent interview about Indonesian smelter construction. The firm expects three smelters to be complete in 2017, with combined annual pig iron output equivalent to 120,000 tonnes of nickel. Given low nickel prices and the likelihood of more production cuts, and with about 50% of world producers in a loss position, the medium-term outlook for nickel prices should be bright. A supply deficit is also expected in 2016. However, high inventory on the London and Shanghai exchanges, in the order of 500,000 tonnes and unofficial stocks also estimated to be high, will likely cushion significant price increases. The low nickel price has also reduced Chinese NPI production, but the exact impact is difficult to gauge. Last year, nickel market watchers expected a supply deficit in the second half of the year. In fact, the nickel price crept steadily downward throughout 2015, ending the year 42% lower. The good news is that nickel is in a strong contango on the London Metal Exchange, but at a modest base price of US$4.11/lb. 2015 might have been a bad year for nickel, but many involved in the space are hopeful about its prospects in 2016 and beyond. Raymond Goldie, Vice-President, Salman Partners, is one such optimist. All in all, he “expects a bull market in nickel that could last several years.” Other optimists include Morgan Stanley, with an average price forecast of US$4.83/lb. for 2016, and calling for US$5.55/lb. in 2017. RBC Capital Markets sees better times ahead as well, with a price forecast of US$5.00/ lb. in 2016, rising to US$11.00/lb by 2019 and with a long term projection of US$9.50/lb. While nickel has recovered slightly from the severe depths of the post super-cycle, several uncertainties remain. Global demand is still heavily dependent on China as the largest consumer, so whether China experiences a gradual slowdown or an abrupt one will have a strong impact on the price. In 2016, the inventory overhang will also likely continue to suppress the price. The supply side is also facing concerns around the declining discoveries of sulphide ores. But the abundant lateritic sources more than offset this, particularly for NPI production, which will no doubt recover rapidly from the Indonesian raw ore export ban. The long-time base metal star will no doubt be a Phoenix and rise again. But substantial price recovery may take a few years. (Written by Peter Jones, Vice Executive President, Century Global Commodities Corporation)