This year will be different. That’s what some analysts are saying about the price of nickel, a metal used in making stainless steel that was supposed to surge last year but instead plunged to a 12-year low. While the Slump of 2015 has continued this month, the consensus forecast is that the long-expected reduction in supplies will finally materialize. The bet is that users will draw down inventories, mine output will shrink because most of the industry is losing money, and demand will improve in China, the world’s largest consumer. That should spark a rally, albeit from prices that are 44% lower than a year ago, the bulls contend.

It’s quite a brave person that comes out and says there’s going to be a strong rally, Caroline Bain, a senior commodities consultant at Capital Economies, said by phone from London. I’m a bit cautious that we can have a big rally, but at least all the indicators are pointing in the right direction. The main thing is there is a deficit now, so we do expect to see some of the stocks to start to come off.

That’s what was supposed to happen last year, when prices fell short of the consensus target by about a third. After Indonesia, the world’s largest producer of nickel ore, banned exports in 2014, prices jumped to a two-year high and banks including Goldman Sachs Group predicted global shortages in 2015. Instead supplies from the Philippines proved more than adequate, China’s stainless-steel industry slowed and inventories ballooned. Last year, prices fell more than any other base metal on the LME.

While forecasts have been slashed, nickel will average $12250 a metric ton in 2016, according to the median estimate of 16 analysts compiled by Bloomberg. That’s up about 49% from Tuesday’s close of $8240 and is the biggest gain expected for base metals. Throughout last year, people were looking for stocks to come under control, but that’s taken much longer than expected, Mark Beveridge, a senior consultant for stainless steel at CRU Group in London, said in a phone interview on January 6. Inventories tracked by the LME ended last year at 441294 tons, down 6% from a record high of 470376 tons in June, exchange data show.

STEEL BUILDINGS

China’s stainless steel output will rise this year, rebounding from its first decline in seven years, helped by demand from government-backed infrastructure projects, Beveridge said. Stainless steel used in buildings and cars tends to have higher nickel content than metal used in things like white goods and kitchen cutlery, he said. Actual consumption in China is not as negative as people assume it might have been and could improve toward the end of this year. Based on the assumption there is gradual improvement in manufacturing and the construction sector doesn’t blow up. Glencore said last month that its Murrin mine in Australia may be shut, adding that as much as 70% of global output was unprofitable. BlackRock, the world’s largest asset manager and Glecore’s fourth-biggest shareholder, has questioned how much longer the nickel industry can continue to operate unprofitable mines. Nickel smelters in China, the largest producer, in November announced a plan to cut output in 2016 by at least 20% in a bid to shore up prices.

MORE CAUTIOUS

GMK Norilsk Nickel, which vies with Brazil’s Vale as the world’s biggest producer, indicated it doesn’t expert prices to do much in the near term. The Russian company’s financial plan for 2016, approved last month, anticipates an average of about $9000 a ton, said two people familiar with the situation. It’s still possible prices will keep falling. Output cuts at mines outside of China have been minimal and disappointing so far, Goldman Sachs said in a note dated December 21 that predicted a continuation of weak fundamentals. Another ominous sign is that LME-tracked inventories jumped at the end of 2015, which may signal demand is even weaker than expected in China, said Ivan Szpakowski, commodities strategist at Citigroup. The speed and concentration of the deliveries in largely Asian locations suggests in our view that very little of the metal removed from LME warehouses between June and early December was demand-related, Szpakowski said in a note.

• [Editor:Juan]