SINGAPORE/SYDNEY Aug 2 (Reuters) – Nickel miners are clinging to plans to maintain production, despite a growing supply glut and prices around four-year lows, raising the risk of more writedowns and losses being unveiled in the current financial reporting season.
France’s Eramet this week reported a first-half operating loss and warned the second half would be worse due to weak nickel prices, while other top producers such as Vale SA , Glencore Xstrata and BHP Billiton report in the next few weeks.
Between a quarter to a half of the nickel sector could be running at a loss, according to industry estimates, hit by weak demand from China, the world’s top producer and consumer of stainless steel. Nickel is a key component of stainless steel.
Nonetheless, few miners have yet made deep cuts in output and the trend is set to put more pressure on depressed prices.
“It’s a staring contest, no one wants to be the first to take the pain,” said Robin Bhar, an analyst at Societe Generale in London.
Three month nickel on the London Metal Exchange hit $13,205 a tonne on July 9, the lowest since May 2009 and down from nearly $19,000 in February. Nickel is the worst performer on the exchange so far this year, down nearly 20 percent.
“I think you’re going to have to see writedowns and maybe some further closures,” he added.
The market is in a glut with registered stocks in LME warehouses at a record high above 200,000 tonnes, while Macquarie Bank forecasts nickel supply will rise 4.1 percent 1.845 million tonnes this year.
But at many mine sites, nickel producers are chasing lower operating costs by producing more.
Canada’s First Quantum Minerals Ltd mined a third more nickel in the June quarter, while Western Areas Ltd has just had a record fiscal year in 2012/13. Rather than curb output to reduce costs, senior management at the Australian firm will take 10-20 percent pay cuts.
Fellow Australian Mincor Resources NL also beat its guidance and is maintaining production over the next 12 months.
And despite being one of BHP Billiton’s least profitable businesses, the world’s third-biggest nickel division only saw a 2,000-tonne drop in quarterly production from the previous and year-ago quarters.
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