After three straight years of declines, RBC forecasts a rebound in global nickel demand of 17.1% in 2010 followed by growth of 8.4% in 2011 and 9.5% in 2012. “China remains the main driver of nickel demand growth; however, demand outside of China has rebounded strongly in 2010 on the back of restocking. Demand growth for nickel in stainless steel has softened in the second half of 2010 on lower stainless steel production and a lower austenitic ratio, as producers place increased emphasis on ferric grades of stainless steel containing little or no nickel. We expect an improvement in nickel demand in stainless steel in 2011.“Global refined production decreased for a second year in a row in 2009 on the back of production curtailments, project delays and the Vale strikes. The resumption of production at Vale’s North American operations and the restart of idled capacity and strong nickel pig iron production at current high price levels, however, have resulted in a forecasted 7.4% rebound in production in 2010. We expect further growth in production of 10.4% in 2011 and 9.6% in 2012 as new projects begin to come on stream.“Our analysis suggests that inventories will remain well above the critical level throughout our forecast period. Our forecasted rebound in demand in 2010 and beyond looks likely to be matched by increases in supply, thereby leading to balanced markets and no significant drawdown in inventory.“The resumption of production at Vale’s Sudbury and Voisey’s Bay operations, combined with softness in global stainless steel demand have pushed the market into surplus in the second half of 2010 after a substantial deficit in the first half of the year. We expect increasing downward pressure on prices as a result. In 2011 and 2012, we expect prices to move toward the upper end of the cost curve to limit production increases and balance the market. We forecast an average price of $9.78/lb in 2010, $9.00/lb in 2011, $8.00/lb in 2012, $8.50/lb in 2013 and $8.50/lb in 2014. Our long-term price forecast is $7.50/lb in 2010 US dollars.Risks to ForecastInvestment Demand – Investment demand remains a key driver of commodity prices, thereby leaving prices vulnerable to increased volatility. The emergence of physical ETFs could have a positive influence on prices.Economic Growth – If sustained growth in the developed world is more muted, then the market could remain in surplus in 2011.China – Slower demand growth in response to government measures to cool economic growth or higher nickel pig iron production could lead to a larger surplus.Supply – Currently high nickel prices, if sustained, could lead to further production restarts and higher supply growth than we currently forecast.New Capacity – Delays or difficulties in bringing new projects (many of which rely on new technologies) on stream could result in tighter markets and higher prices than we are currently forecasting.