US investment bank Goldman Sachs said Wednesday it has upgraded its three-month and six-month nickel price forecasts on the back of the Indonesian ban on nickel ore exports.
The bank notes that following a fragmented Indonesian election result, the lack of a clear majority means it appears less likely the new president and coalition government will moderate their policies relating to the ongoing ore export ban.
In addition, it says concerns about the potential for a disruption to Russian nickel supply in the event of any sanctions on exports also presents a more bullish scenario for nickel.
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Nickel has rallied about 25% since the beginning of the year, rising from $14,000/mt to around $17,500/mt.
On Monday, three-months nickel on LMEselect traded as high as $17,917/mt, its highest since February 2013.
"We upgrade our three-month forecast to $18,000/mt (from $14,500/mt) and our six-month forecast to $20,000/mt (from $15,000/mt), but leave our 12-month forecast unchanged at $16,000/mt (given that we expect the Indonesian supply issue to be resolved eventually)," Goldman Sachs said.
In terms of potential upside risk to this forecast, the bank said any nickel export sanctions on Russia could push prices higher.
Downside risk could come from Indonesian mining employee protests, lobbying, and economic concerns relating to lost export and tax revenues that could result in a government policy moderation.
However, Goldman Sachs sees this downside risk as a "low probability outcome" before late 2014.
"By mid-2015, we expect nickel prices to normalize on the back of a forecast aggressive build out of blast furnace processing capacity in Indonesia, which has very low marginal cash costs of $11,500/mt (delivered China) based on our estimates," the bank said.
It notes that it is possible that China may look to dismantle and export small steel blast furnaces to Indonesia, constructing them quickly to export nickel.
"Blast furnaces have [the] potential to raise the nickel content of Indonesian ores from 1.5%-2% to the minimum processing thresholds of 4%," the bank said.
Three-months nickel was trading at $17,610/mt on LMEselect at 0900 GMT Wednesday after base metals consolidated lower due to profit taking at the beginning of the week.
--Greg Smart, firstname.lastname@example.org
--Edited by Jason Lindquist, email@example.com