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SYDNEY—A weakening Australian dollar is shielding the country’s nickel miners from the full force of falling metal prices, giving them an edge over rivals with operations from the Philippines to Canada.
Nickel, which is traded globally in U.S. dollars, has tumbled 12% on the London Metal Exchange since the start of last month on concerns about the amount of metal piling up in warehouses. That has reversed a price rally since the start of the year, when a ban on ore exports from Indonesia prompted big consumers in China to scramble for alternative supply.
For global nickel miners, falling prices are squeezing profits and shaking investor confidence in the industry. Nickel is needed to make stainless steel, and is found in everything from saucepans to shipping containers.
In Australia, however, the pain felt by miners hasn’t been quite so acute. A pullback in the Australian dollar against the U.S. dollar means nickel prices have only fallen about 6% since the start of September after being converted into local currency.
At current exchange rates, a nickel price of US$16,550 a metric ton allows Australian miners to get about 18,830 Australian dollars for each ton of their output.
“That is actually a really good price,” said David Southam, executive director of Western Areas Ltd., which owns active nickel mines in Western Australia state. “Every cent the exchange rate moves is about A$5 million in free cash flow that we get for nothing.”
The U.S. dollar has been strengthening on expectations that the Federal Reserve could raise interest rates next year, in a divergence from other major central banks that are still in easing mode.
At the same time, the Australian dollar has come under pressure because of intensifying concerns about the health of the global economy. Australia’s economy is linked to growth in countries such as China that are big buyers of commodities such as iron ore and coal.
On Tuesday, the Australian dollar was changing hands at US$0.879, compared with around US$0.934 at the start of September.
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