http://www.theaustralian.com.au/business
ABOUT one-fifth of the global nickel industry is operating in the red. British metals analysts Brook Hunt use the glossier term cash-negative but the end result is the same (although the nickel situation is not as grim as aluminium, where China’s growth is causing intense grief to non-China producers).
You would not want to be developing a new nickel mine at present, especially a laterite operation in which metallurgical complexity tends to cause unexpected, and often costly, problems.
So it is 20 per cent in the red, and — looking at Brook Hunt’s graph — it won’t take much more weakening of the nickel price to eliminate the profitability of another 20 per cent of world capacity. And that’s just on the basis of the cash production cost, leaving aside other overheads.
The portents are not looking good this week. The metal fell by 1.8 per cent in Monday’s session on the London Metal Exchange, then another 2.1 per cent in Tuesday’s trading to close at $US16,050 a tonne. A drop below that level would be a heavy psychological blow for nickel.
It is already seen as the worst performing base metal this year.
Stephen Briggs at BNP Paribas has gone on the record saying substantial production cutbacks were inevitable if the price did not recover quickly. Well, it has shown no sign of that.
The new mines coming on — including the huge laterite project in Madagascar — will make the situation only worse.
Nickel has been in surplus since the middle of last year and surpluses are expected to average up to 50,000 tonnes a year through to 2016.
Global economic slowing is partly to blame, too. Nickel use grew by 7 per cent last year but growth is barely above 2 per cent this year.
China figures
EVERYONE will be hanging on Chinese gross domestic product figures out tomorrow and any bad news will hit metal prices where it hurts. But the general concern about China’s economy is only part of the metals story.
Apart from a global surplus in nickel from rising production, it doesn’t help that China went on a buying spree last year, when its nickel imports almost doubled from 2010. That means there must be some impressive stockpiles somewhere and Chinese stainless steel producers won’t be needing to buy up big this year from foreign miners.
For the rest of this article, please go to The Australian website: http://www.theaustralian.com.au/business/opinion/nickel-in-the-red-and-there-is-worse-to-come/story-fnciihm9-1226423880962