2008 redux? USW and Vale bargain; Thompson waits – (Thompson Citizen Editorial – August 17, 2011)

The Thompson Citizen, which was established in June 1960, covers the City of Thompson and Nickel Belt Region of Northern Manitoba. The city has a population of about 13,500 residents while the regional population is more than 40,000.  news@thompsoncitizen.net

On Aug. 6, 2008, an editorial appeared in this space headlined “Thompson’s summer of pause,” which started off by saying, “This might well be known as the summer of the pause in Thompson.” While the editorial mainly looked at some big-ticket capital construction projects that were behind schedule, it was also in a general way a commentary on the very different feel that summer had to the frenetic go-go boom spring and summer of 2007.

Then in 2008 as now there was a mood of watchful anticipation, mixed with a measure of uncertainty in the air, as Vale, as it is now known, was within weeks of its collective agreement expiring with United Steelworkers Local 6166 in mid-September.

In 2007, nickel briefly sold on the London Metal Exchange (LME) that May for a record high of $25.51 per pound. And in November 2007, Vale announced the $750-million expansion of its mining, milling, smelting and refining operations here, aimed at boosting Thompson production by about 36 percent over the coming decade. The cost of the refinery modernization project over five years was estimated to be about $116 million.

Three Novembers later, of course, the news was very different for the Thompson smelter and refinery.

Our Aug. 6, 2008 editorial was penned – without benefit of prescience, we must admit – about six weeks before Wall Street investment bank Lehman Brothers collapsed and the economic global meltdown, now known as the Great Recession, began. Fortuitously, the 1,250 United Steelworkers Local 6166 members had coincidentally inked a three-year collective agreement with Vale Sept. 15, 2008 – the very day Lehman Brothers collapsed. The tentative deal had been reached three days earlier on Sept. 12, 2008. Workers voted 65.5 per cent in favour of the contract.

While the benchmark cash nickel price had already fallen by about two thirds between May 2007 and August 2008 to about $8 per pound, it would dip still further to below $4 per pound by December 2008 and was $4.31 per pound as recently as March 9, 2009 – a fall of 83.1 per cent over 22 months by the day the Dow Jones closed at a 12-year low of 6,547.05, its lowest close since April 1997, having lost 20 per cent of its value in only six weeks.

But at the end of the day, no one, of course, has a crystal ball for prognostication when it comes to these things. Bloomberg News noted this June nickel was heading for its biggest glut in four years, driving prices lower into 2012, “as next year’s surplus will rise to 60,000 metric tons from 12,000 tons in 2011, making nickel the most oversupplied metal relative to output or use. New mines will boost supply 11 percent in 2012, the most in 17 years.”

Markets fluctuate. That’s reality. In March 2009, we noted, “World demand for stainless steel, the main use for nickel, continues to drop and inventories are at their highest levels since at least June 1995. Vale’s sales from nickel slumped 58 percent in the fourth quarter from a year earlier” and nickel has been the worst performing metal so far in 2009 on the London Metal Exchange, declining 15 per cent in the first two months of the year, the most among LME traded metals. Inventories are on their way to rise above 100,000 tonnes, the highest since June 1995.”

While Vale’s Manitoba Operations aren’t immune to negative world nickel forces, the market during the last recession remained strong for Thompson’s high-quality plating nickel, suggesting it wouldn’t be accurate to solely measure our prospects by the daily benchmark cash nickel price per pound on the London Metal Exchange where nickel prices are hovering around $9.63 per pound.

As we said, we don’t have a crystal ball. Of the local capital projects we commented on for being delayed three years ago, the Vale smelter and refinery, now slated to close by 2015 rather than expand, was not one of them. It was actually on our list of projects that appeared in 2008 to be proceeding then as planned.

All eyes are on Vale and the United Steelworkers in the weeks ahead leading up to Sept. 15. Since the last contract was signed here on the cusp of worldwide economic chaos, Vale and the USW have also engaged in two long and bitter labour disputes in Sudbury and Voisey’s Bay.

Controlling shareholders of Valepar, however, the investment group that controls Vale, ousted Roger Agnelli as chief executive officer of Vale, replacing him with Murilo Ferreira, who rejoined the company May 22. Ferreira was chief executive officer of Vale Canada and executive director of nickel and base metals when he left the company in 2008 and was replaced by Tito Martins.

On the union side, this is USW Local 6166 President Murray Nychyporuk’s first time leading the local union across the bargaining table since he defeated former president Les Ellsworth for the top job in April 2009. Nychyporuk is not given to either public ranting or hyperbole.

What he is, from what we’ve observed, is a shrewd and cool realist, likely to be a tough but fair bargainer, which is similar to the reputation Ferreira has in some circles, although, he’s more likely to be involved in negotiations well in the background than at the table.