Zinc and nickel investors, rejoice: Analysts have predicted that both metals could go into deficit in 2015, thus driving global prices higher. Though there are doubts surrounding the state of the base metal sector this year, zinc and nickel prices are expected to benefit from the cyclical recovery that is set to take hold of the sector.
According to Stefan Ioannou, mining analyst at Haywood Securities, zinc could finish strong this year at around $1.10 per pound-a notable improvement from its current price at less than $1 per pound. Prices in zinc have already increased more than 17 percent in 2014.
"Over the last two years or so we've lost about 12 percent of world production and the advance stage projects slated to replace those mines are quite few-not enough to replace what we're losing," said Ioannou. "We are anticipating a move in the zinc price, probably later this year." He added that the rise in zinc prices might even extend up to 2017.
Companies dealing with zinc could do well in the next couple of years, as higher pricing can prompt more production to moderate the market. One of the promising zinc companies is Peru's Trevali Mining Corporation, which has a current capacity of 50 million pounds of zinc a year. It is expected to expand and boost production capacity to over 80 million pounds by 2017.
As for nickel, Ioannou predicts that it would fall into deficit as early as mid-2015, with the Indonesian ore export ban still in place and the Philippines contemplating a similar move. Even if the Philippines only imposes higher taxation and not a total export ban, nickel could still end up in a squeeze. "For nickel, the world supply and demand balance will shift into a marked deficit in 2015 as China depletes its inventory of Indonesian ore production," said Patricia Mohr, a commodity market specialist at Scotiabank.
There are nickel projects underway, though their production might not be able to meet the global nickel demand right away. For instance, the Kun-Manie Project of Amur Minerals Corporation (OTC: AMMCF) could not yet start production because its mining license application is still awaiting the approval of the Russian government. Should it start production though, Amur Minerals's Kun-Manie Project may be able to curb worldwide demand for the silvery-white metal. The Kun-manie Project, after all, is one of the top 20 largest nickel sulfide deposits in the world.
Ioannou reminds investors to remain cognizant of the market's volatility, as it will have a huge impact on base metal prices, especially the price of copper. However, corrections can pave the way for bargain hunting among investors. He also cautions against companies with huge amounts of debt, as this can also translate to declining cash flow.
"If there's any debt on the balance sheet, you want to be sure that these companies are going to generate enough near-term cash flow to service that debt," he said.