Speaking at the 2009 Paydirt nickel conference in Perth yesterday, consultant Martin Pyle said the history of the nickel price suggested the current period was looking similar, although not identical, to the 1970s.
Pyle pointed to a super-cycle in nickel between the 1930s and 1960s thanks to post-war industrialisation, which saw the nickel price rise from $US1.50 per pound to over $4/lb.
This growth stumbled in the 1970s and Pyle suggested the current period was perhaps following much of the same pattern of that decade with the global financial crisis providing the oil shocks of that era.
After 1975 there was a “very quick rally” until 1980 where the nickel price leapt again.
“My thesis today is that we’re looking toward similar conditions,” Pyle said.
He said with China’s growth replacing demand from Japan in the post-war period, but on a much greater magnitude, the outlook was positive in the long-term.
However, in the early 1980s the nickel price faltered again when central banks reigned in rampant inflation and in doing so significantly weakened economic growth.
“This is obviously a risk today, when you look at the present day, inflation is one of the consequences of the massive fiscal stimulus we’re seeing globally and we must reflect on the risks of higher inflation and what policy makers will do to counteract that sometime in the future,” Pyle said.
What that really means for nickel producers is that while the long-term trend will be positive, a great deal of short-term volatility is still coming down the road.
“I think long-term nickel prices will rise over coming decades in real and nominal terms, but we’re going to experience this tremendous volatility,” Pyle said.
“Nickel has grown in demand around about 5-6 per cent year-on-year for the last decade and none of the analysis here suggests to me why that would be any different on a 10- year view going forward.”
And even now with spot prices well above the long-term spot price forecast, new supply is not returning close to the rate required across a 10-20 year view.
As Pyle pointed out, caution in the short-term from individual producers could have unintended consequences.
“It is not obvious at the moment that nickel is going to continue its recovery so caution is a sensible approach,” he said.
“And this often leads to these positions when we end up with a sudden tightening in demand when recovery does come through.”
Pyle also attributed at least some of nickel’s volatility over the past 30 years to the introduction of the London Metal Exchange spot pricing from 1989.
“Prior to that, nickel had been priced by producers predominantly,” he said.
He also said it was with “some irony” that many analysts and commentators argued iron ore should be moving to a spot price mechanism in order to bring stability and transparency to the market, suggesting nickel’s volatility post-LME pricing indicated this may not always be the case.
