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NEW YORK (Scrap Monster): A nickel deficit of 5,500 metric tons is the central projection for market balance in fourth quarter (Q4) this year, providing support for nickel prices above $20,000/tons, said Citigroup Inc. (NYSE: C), the world's largest financial services network, in a briefing.

The nickel has been the worst-performing base metal so far this year, with three-months nickel having fallen 30% from its $22,150/mt peak in early February on the London Metal Exchange.

According to the New York based bank, the implementation of legislation to restrict exports of nickel ore from Indonesia will push the nickel market into deficit by the fourth quarter and support prices. Indonesia accounts for 23% of global mined nickel production and nickel ore from the country accounts for 60% of China's production of nickel pig iron.

The legislation states that only mining companies that have submitted concrete plans for investment in downstream processing, or have Contracts of Work and have signed an integrity pact that affirms their investment commitment, will be able to export nickel ore. More than 600 mining companies and mineral exporters have applied for the right to continue exporting.

“There are three stages to the application, and the third will involve the payment of a 20% export tax, effective starting May 16, to all registered ore exporters. In the short term, we don't expect the legislation to have a significant impact on China's NPI production,” they added.

The bank continued that, “China's NPI producers are holding two- to three-months worth of ore inventory, and some reports suggest there is up to 12 million mt of nickel laterite ores at ports in China. But in the second half of the year, we believes there will start to be a noticeable production impact.”

As of 12.47 GMT on Thursday, Three-months nickel was trading at $16,380 per metric tons on the London Metal Exchange.