As signs of revival in world eco-nomy begin to show, nickel prices are likely to average around $15,000 a tonne in the second half of the year, riding on the expected increase in consumption.

“The recent price rise appears to be largely driven by market expectations of a recovery in demand during the second half of 2009 and a further cut in the metal’s production. The extent to which the recent increases in nickel prices can be maintained will depend on market estimates of future demand and supply”, said Ashish Kapur, CEO, Invest Shoppe.

Nickel prices averaged $11,500 a tonne in the first five months of 2009, after falling to $10,500 a tonne in the March quarter, the lowest since September, 2003. Despite weak consu-mption, prices started recovering grad-ually during the June quarter 2009, ave-raging an estimated $12 900 a tonne.

According to International Nickel St-udy Group, world primary refined nickel production was 1.42 million tonne (mt) in 2007, and declined to 1.39 mt in 2008. As supply adjusts to demand, a further decline to 1.26 mt is expected in 2009. The 2009 figure, however, does not inc-lude any adjustment factor for possible production disruptions.

World primary nickel consumption stood at 1.31 mt in 2007, and decreased to 1.29 mt in 2008. This year, a further decline to 1.18 mt is expected. No recovery in primary nickel demand and stainless steel production is anticipated till the second half of 2009.

Praveen Singh, rese-arch analyst for comm-odities at Sharekhan, attributed the rise in nickel prices to the possibility of demand revival in China, Japan and Europe.

GFMS, a global precious metals cons-ultancy, in its Base Metals Forecasting Monthly, was relatively cautious on nic-kel prices over the next few months, as prices had risen sufficiently to bring it up past the marginal production cost for much of the world’s idle capacity, which could put a bit of a cap on prices in the short-to-medium term. Consequently, it is looking to a price range of just below $7 to around a little over $10/lb over the next four months.

Stainless steel is a major driver of nickel demand, as it is used for product manufacture. Secondary nickel scrap also has multiple usages.

As China is the biggest consumer of metals, its strong import levels, up 406 per cent year-on-year at 41,008 tonnes. However, state-owned non-ferrous metals information provider Beijing An-taike Development said China’s nickel consumption was expected to fall by 6.25 per cent YoY in 2009 to 300,000 tonnes from 320,000 tonnes in 2008.

According to Amar Singh, head of commodities research at Angel Broking, on a year-to-date basis, nickel prices have gained almost 60 per cent. Reports of growing interest in commodities from a number of sovereign wealth funds add to the fact that the rally may last long. After over a year of de-stocking, service centres in Europe, too, have reported modest restocking.

“Latest demand-supply statistics in case of nickel indicate that the global refined nickel market is in surplus of 55,900 tonnes during January-June 2009. Global output during this period declined 2.30 per cent to 669,100 tonnes on the back of production cuts in Japan. However, global demand fell at a much faster pace by 11.50 per cent to 613,200 tonnes. The decline in demand is huge and suggests that prices could see a correction soon,” Singh said.

Two-thirds of nickel goes into stainless steel making. Somnath Dey, metals incharge at Religare Commodities, said, “The nickel market is expected to be in surplus of 91,000 tonnes in 2009, which could largely be worked off by the end of 2010. But with plenty of idle capacity available, the price will be as much a hostage to supplier responses as to the size and rapidity of global economic recovery. China’s role would largely depend on how much steel it intends to export during this period.”