Supply has been the key factor given Indonesian and Filipino disruptions, she noted at the LME Week seminar in London on Monday October 31.

Key will be the pace of growth of nickel pig iron (NPI) production, she said. Lower Chinese NPI production reflects lower Filipino supply while Indonesian NPI is starting to ramp up at a fast rate, Lloyd added.

Nickel ore stocks are getting very low ahead of the next Filipino rainy season, which is now starting, she said.

But refined nickel stocks are still high, restricting any significant price rises. Macquarie estimates the nickel surplus at around 500,000 tonnes.

The reality is that there is too much inventory after five consecutive years of surplus, Lloyd said.

The key demand theme will be the rebound in the stainless steel market, she said, with major growth in stainless steel production in China, India, Taiwan and South Africa this year.

As well, enforced Chinese cuts in the fourth quarter of 2016 due to a ferro-chrome shortage should clear any inventory overhang.

Macquarie forecasts a significant recovery in nickel use this year of 6% due mainly to two factors: strong growth in 300-series production, especially in China, and growth in secondary supply at just 1.8% year-on-year, according to the bank.

A collapse in oil and gas investment has hit non-stainless uses, particularly in the USA, but this is partly offset by strong growth of nickel use in batteries, Lloyd added.

Macquarie is constructive on nickel’s outlook into next year – it sees prices trading between $11,000 and $12,000 per tonne in 2017 and at $13,000 by the end of the decade.

The three-month nickel price was recently at $10,520 per tonne, an increase of $95 on Friday’s close, although stocks jumped by 1,848 tonnes to 363,558 tonnes.

This article was first published on www.fastmarkets.com.