Nickel Market Seen by Citi Depleted Faster Than Expected on Ban

Nickel, the best-performing base metal this year, will extend its rally as the market is headed for a bigger deficit than previously forecast in the wake of Indonesia’s ore export ban, according to Citigroup Inc.

World supply will be in a 3,000 ton shortfall by the end of the year, with the deficit widening to 134,900 tons next year, Edward Morse, global head of commodities at Citigroup, said in a report dated yesterday. The bank previously projected a 30,100-ton surplus for 2014 and 132,200-ton deficit for 2015. Citigroup raised its 2014 average price forecast by almost 12 percent to $18,550 a ton.

Nickel, used in stainless steel, has surged 39 percent this year after Indonesia, the biggest producer from mines, banned shipments of unrefined ores in January. Imports of Indonesian nickel ore by China in May fell 99 percent from last year, according to the bank. Official results from the Southeast Asian nation’s July 9 presidential election are due in less than two weeks, with neither candidate seen as lifting the export curbs.

“Developments have progressed more rapidly than forecast” after the ban, the bank said. “We do not expect any policy changes from an incoming government.”

Nickel supply will contract by 2.5 percent this year while demand grows by 5.7 percent, according to Citigroup.

Nickel for delivery in three months on the London Metal Exchange was down 0.3 percent at $19,320 a metric ton at 2:51 p.m. in Hong Kong. It’s averaged $16,795 a ton this year.

Copper Rising

The bank also increased its 2014 copper price forecast to $6,940 a ton from $6,785. More investment in China’s power grid network, continued scrap-market tightness and accelerated road and rail investment point to higher rates of Chinese refined copper consumption this year, the bank said.

Copper financed in China won’t be shipped overseas in significant volumes following an investigation into metals warehousing fraud at Qingdao Port, the bank wrote. Dwindling attraction from Western banks to enter new deals using copper as collateral for credit is a risk to imports, Citigroup said.

Zinc has climbed 4.6 percent this month and advanced 13 percent this year on speculation supply is tightening. The rally in July is fundamentally unsupported, said Citigroup.

“The current zinc rally looks unsustainable in the short term,” according to Citigroup. Prices will average $2,100 a metric ton through the third quarter, the bank said in the report.

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