OREANDA-NEWS. May 21, 2015. Global nickel market fundamentals have been troubling analysts recently with the market constantly forecast to be about to enter a significant deficit. However, this outlook never quite seems to materialize, leaving nickel prices drifting and failing to rally as expected on the back of a tighter market balance.

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The failure of the nickel market to enter a global deficit is highlighted by the large buildup of inventory in London Metal Exchange warehouses (see graph). Indeed, market participants feel that these stocks will have to be drawn down considerably before any meaningful improvement will be seen in the LME nickel price.

Part of the increase in LME warehouse inventories has been as a result of exports of Chinese refined metal that was relocated from bonded warehouses, as well as slower demand from the global stainless steel sector that has been in a destocking phase since May of 2014. Stainless steel accounts for around two-thirds of global nickel consumption.

Likewise, China’s stocks of Indonesian nickel ore failed to decrease rapidly in the aftermath of Indonesia’s ban on nickel ore exports in January 2014 due to increased exports from the Philippines and a blending of Indonesian and Filipino ore for China’s nickel pig iron (NPI) production.

So what are the real fundamentals of the global nickel market? And when can we expect the market to shift to deficit?

The world’s largest nickel producer, Norilsk Nickel, said this week at its 2015 Strategy Update that LME nickel warehouse inventories were now at a “turning point” and are expected to decline. The producer also commented that China’s inventories of nickel ore are down significantly, with only around two months of consumption left.

The company also believes China’s dependence on imported refined nickel is set to rise. It estimates that total nickel demand in China in 2015 will be made up of 42% imported refined nickel, 47% imported feed, and around 11% of domestic feed. In 2014, total nickel demand in China consisted of 28% imported refined nickel, 61% imported feed, and 11% domestic feed. In its 2014 full-year results, the company forecast a 20,000 mt global deficit this year down from a 93,000 mt surplus in 2014.

While a number of analysts are also forecasting a revised deficit between 20,000-45,000 mt this year, it remains to be seen whether this shift will actually occur. And with much now resting on the second half of 2015 for a change in nickel’s fortunes, it remains to be seen if the forecast deficit scenario will really unfold, especially when taking into account the traditionally slacker period for metal demand over the summer months.