Nickel supply continues to spring surprises – by Andy Home (Reuters – November 2, 2012)

(Reuters) – Nickel has been the underperformer of the industrial metals traded on the London Metal Exchange (LME) for much of this year. The stainless steel input fell harder during the summer sell-off and rallied less than the others on the QE3-fuelled bounce in September.

Since then the broader price pull-back has seen three-month nickel crash back to below $16,500 per tonne, a level where it is challenging the top end of the production cost curve.

The reason for this consistent underperformance is not just concern about the state of the stainless steel sector. After all, global growth fears have affected just about every industrial commodity from aluminum to iron ore to zinc.

What has marked nickel out since the start of the year and what continues to weigh so heavily on prices is the market’s supply side. Supply is expected to exceed demand by 50,000 tonnes this year, according to the International Nickel Study Group.

It will do so again next year but the scale of surplus will depend on the success of a wave of new projects currently entering production, a classic commodity example of bad timing.

Several of these use high-pressure-acid-leach (HPAL) technology, which has up to now enjoyed a highly mixed performance record, throwing a major “known unknown” into the mix.

It is turning out to be only one of several supply-side variables, including what is shaping up to be a possibly industry-changing evolution in Indonesia.


The nickel cost curve is defined by China’s nickel pig iron (NPI) sector, which is problematic since this relatively new production stream is still evolving fast with a new generation of lower-cost operators starting up over the last couple of years.

It is also problematic because there is poor statistical visibility on NPI production levels.

Anecdotal reports suggest there has indeed been a supply response to the low price environment, albeit not one that is obvious from China’s call on nickel units from the rest of the world.

Outside of China the reaction to weak prices has been limited.

There has been some portfolio rationalization by the likes of Xstrata, which closed its Cosmos mine in Australia [ID:nL4E8KQ3AY], Vale, which shuttered its Frood mine in Canada [ID:nL1E8LMN4C] and BHP Billiton, which has been trimming costs at its Australian operations. [ID:nL3E8LQ2DX]

Any actual impact on production from such book-tidying, however, has been overshadowed by a couple of largely unexpected developments.

Loma de Niquel, the Venezuelan ferronickel producer owned by Anglo-American, closed in September as a long-running dispute over the company’s mining concessions comes to a head.

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