Nickel Is Heading for Oversupply by 2013, Brook Hunt's Mitchell Forecasts

The nickel market is heading for oversupply by 2013 on current projections, prompting a decline in prices, said research firm Brook Hunt.

“We are apparently heading towards oversupply by 2013, but it won’t be anywhere near as much as” expected because of the potential for project delays, Andrew Mitchell, an analyst at Addlestone, England-based Brook Hunt, a Wood Mackenzie company, told the New Caledonia Nickel Conference.

Nickel is the second-best performer of the six main metals traded on the London Metal Exchange this year, driven by rebounding demand from stainless steel makers. The market is expected to return to a “small” supply surplus in 2011, UBS AG said last month in a report.

Prices may drop to $6 a pound, or $13,224 a metric ton, to $7 a pound by 2013, Mitchell said. Nickel futures on the London Metal Exchange traded at $22,350 a ton at 11:18 a.m. Sydney time.

Projects using high pressure acid leaching technology “account for half the projected increase in nickel supply and that if they fail - or are an economic failure - the supply demand outlook would be radically altered,” said Alan Heap, managing director of global commodity analysis at Citigroup Inc., in a Nov. 8 report. The technology treats laterite ore, which is harder to process than other nickel ores, using sulfuric acid at high temperatures and pressures.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Keith Gosman at kgosman@bloomberg.net

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