A primary nickel supply gap globally is set to emerge over the next decade as the "phenomenal" demand for stainless steel outpaces production from new and existing mines, according to the Brussels-based Nickel Institute.

The warning was issued at the 2006 Paydirt Australian Nickel Conference in Perth recently by Institute president Steve Barnett.

Quoting Commodities Research unit data, Steve Barnett says nickel consumption tracked the stainless steel industry and it was the stainless steel industry as the highest consumer of nickel, which dictated whether or not there was a shortage of nickel.

"The global nickel shortfall last year was 70,000 tonnes and it is already 60,000 tonnes this year so we are heading for a larger deficit in 2006 than last year," he says.

"China currently needs 200,000 tonnes a year and though self sufficient in nickel until six years ago, will need 400,000 tonnes per annum within a few years.

"But this is still less than the European Union's projected demand of 450,000 tonnes per annum by 2015.

"Against this, some 380,000 tonnes a year of new nickel production is due to come on between now and the end of the decade compared to current annual production of around 1.4 million tonnes. However to achieve that requires every known major project to be commissioned as planned, including Australia's Ravensthorpe mine."

Steve Barnett says that with lead times of 7-10 years for a new nickel mine, and these US$1-2 billion projects only generating 50,000 tonnes each per year, the shortfall gap was likely to remain wide as stainless steel demand was running at 6% globally and around 22% for China alone.

"New production will increasingly have to come from lower grade nickel laterite projects with higher development costs and producers will need to get around US$5-6 per pound to generate a return. This is double the return estimates of just 5 years ago."