An ugly start to what may be a brutal year for nickel producers – by Andy Home (Reuters U.S. – January 14, 2016)

LONDON – If the first two weeks are anything to go by, this is going to be an ugly year for nickel producers. Canada’s Sherritt International and Japan’s Sumitomo Corp have just announced massive write-downs against their Ambatovy nickel assets in Madagascar.

The total impairment will be $2.4 billion on a 100 percent basis, according to Sherritt, based on a long-term nickel price of $8.50 per lb, or around $18,400 per tonne.

It’s a hugely disappointing outcome for both companies and their shareholders given the $5.5 billion Ambatovy project is only now approaching nameplate capacity after a lengthy three-year ramp-up.

Moreover, that long-term price of $18,400 looks like a pipe-dream. Three-month nickel is currently trading on the London Metal Exchange (LME) at $8,400 per tonne after hitting a 12-year low of $8,100 this week.

These two facts are not unrelated.

Nickel has fallen harder and further than any other major base metal because the supply side has failed to respond to the demand shock rippling out of China.

The continued ramp-up of new projects such as Ambatovy is part of a broader problem of inelastic supply.

The global nickel market is still generating surplus units, adding to what are already mountainous stocks of the stuff.

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