Nickel prices have been rising following the Indonesian ban that was enacted in an attempt to encourage foreign investment in ore processing in the country.
"While the export ban was announced more than four years ago with an unchanged starting date of January 2014, few market observers, including ourselves, believed that Indonesia would have the resolve to stick with this agenda," Scotiabank said in a report Monday.
"However, after three months and no signs of the ban being eased or watered down, the nickel market has begun to panic, with prices moving up sharply."
The bank said it now expects nickel to average US$7.66 per pound this year, up from earlier expectations for US$6.75. Scotiabank also raised its outlook for 2015 to US$9 from US$7 for 2016 to US$10 from US$7.50.
The price of nickel was US$6.82 per pound last year.
The upgraded outlook for nickel by Scotiabank came as Toronto-based Royal Nickel Corp. (TSX:RNX) said it has bought a 25 per cent stake in Sudbury Platinum Corp. for C$1.5 million.
SPC, a private subsidiary of Transition Metals Corp., holds an option to earn up to 70 per cent of the Aer-Kidd nickel-copper-platinum group metals project in Sudbury.
Mark Selby, interim president and CEO of Royal Nickel, said the price of nickel could return to levels last seen in 2006-07 when it went for $15 to $20 per pound.
"Now that the market is realizing this Indonesia ban, as we said, will remain in place, we're already seeing nickel prices bid up from the lows of $6 a pound," he said Monday.
Selby said the company is seeing signs in China — a key producer of stainless steel — that prices are on the rise.
"The port inventories have already dropped by six million tonnes in just two months," he said.
"Outside of China we're seeing also a number of very strong signs that the global nickel and stainless markets are improving."
CIBC estimated that Indonesia accounted for about one-third of the world nickel mine production last year and that a strictly enforced ban could remove 40 million to 50 million tonnes of nickel ore from the market.
CIBC conceded that earlier this year it thought the ban could eventually lead to a nickel shortage, but did not expect a meaningful impact on prices until 2015.
"With a current spot nickel price of US$7.90 per pound. the market dynamic has clearly changed," CIBC said.
"We are now learning that nickel ore prices in China are climbing and FOB prices for Philippines nickel ore are also on the rise."
However, both Scotiabank and CIBC cautioned that if Indonesia does soften its ban, nickel prices could slip back to their previous levels.
"We have already read about media speculation about some movement on a possible reduction of copper concentrate tariffs in Indonesia, so anything could happen with respect to nickel," CIBC said.