Oct 7 (Reuters) – You don’t need to look very far to understand why nickel has been the consistent underperformer of the London Metal Exchange (LME) base metals pack since the middle of the year.
The explanation comes on a daily basis in the form of the LME’s morning stocks report.
Today’s showed registered inventory rising by a net 558 tonnes to 240,408 tonnes, an all-time record high – the latest in a long series of them – as surplus units spill into exchange warehouses. Nickel is a market in chronic oversupply resulting from systemic over-production.
Supply needs to be cut if the market is to rebalance. But this market’s supply profile is complex, with at least three moving parts.
The first is China’s nickel pig iron (NPI) sector. There are still few signs that the expansion momentum in NPI is slowing. Rather, price pressures are forcing producers to switch to lower-cost technology, in effect reducing the collective cost curve.
That’s put pressure on existing higher-cost producers in the rest of the world.
There has been some supply-side response but up to now it has been patchy. A few Australian mines have been shuttered. Glencore Xstrata has mothballed its ferronickel operations in the Dominican Republic, while Votorantim has done the same at its Fortaleza plant in Brazil.
Then there is the third wild card, the new projects currently ramping up with the sort of bad timing that commodity markets used to be famous for.
HPAL – TWO STEPS FORWARD…
This third supply element is itself highly unpredictable, largely because four of these projects are working with high-pressure-acid-leach (HPAL) technology, which has a highly problematic track record.
And the operational challenges were again evident in the latest batch of quarterly production reports, with two downgrades to production guidance.
In the case of the Ambatovy project in Madagascar, this was the second consecutive downgrade.
Ambatovy, with nameplate capacity of 60,000 tonnes per year finished metal, was originally expected to produce 35,000 tonnes in its first full year of operation.
That figure was cut to 31,000 tonnes at the half-year stage and has just been cut again to 26,000 tonnes.
Sherritt International, majority owner and operator, said that ore throughput in the third quarter declined to 39 percent of nameplate capacity from 41 percent in the second quarter.
The core problem was “planned and unplanned maintenance activities” with the refining plant, “including acid injection system failures on Autoclaves 2 and 3 that caused external damage to the shell of the autoclaves”.
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