Australia billionaire spends big on nickel even as glut worries persist – by James Regan (Reuters U.S. – May 3, 2013)

Billionaire Clive Palmer earmarks $1 bln to upgrade nickel refinery

SYDNEY, May 3 (Reuters) – Australian mining magnate Clive Palmer is joining Vale, Xstrata and other sector heavyweights pouring money into nickel despite a dire near-term outlook for demand, as they plough on with projects bought on the cheap or as part of corporate takeovers.

Hopeful that appetite will pick up as the global economy improves, they are reluctant to shed assets after investing billions. But that risks deepening a supply glut in the short term and piling more pressure on nickel prices, which have fallen around 13 percent so far this year and were the worst performer on the London Metal Exchange in 2012.

Palmer, a self-described eccentric who is building a replica of the Titanic, plans to spend a hefty $1 billion this year upgrading an ageing nickel refinery in Australia, battling to reduce production costs through steps such as revamping equipment and waste disposal operations.

“The $1 billion … will help make the refinery more efficient in a time of low nickel prices,” said Andrew Crook, a business adviser to Palmer. He declined to give details on operating costs as the Yabulu plant is privately owned. Xstrata Plc, Vale SA, First Quantum Minerals Ltd, China Metallurgical Corp, Sherritt International and Sumitomo Corp are among companies spending heavily to build new nickel mines and processing plants.

Most of these were snapped up at low prices or as non-core components of takeovers, such as Vale’s buyout of Canada’s Inco and Xstrata’s purchase of Falconbridge, both in 2006. Soon after that, nickel zoomed above $50,000 a tonne, more than three times today’s prices.

Now nearing completion, they are running head first into an oversupplied market, hurt by weak sales to stainless steel manufacturing, which buys two-thirds of the world’s nickel.

LME nickel is trading at around $15,000 a tonne, over $6,000 off its 2012 peak, with UBS saying prices this year will average only slightly higher at about $17,000.

Mining consultants Wood Mackenzie estimate at least 40 percent of the world’s nickel industry is currently running at a loss. But industry executives are holding on for an upturn.

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