On a remote island in the Pacific Ocean, mine owners like Glencore Plc and Vale SA are losing money on every ton of nickel they unearth in what amounts to a contest to see who can endure the agony longer.
A prolonged surplus of nickel has sent prices plunging to a 12-year low and below the cost of production for more than two thirds of the world’s mines.
Nowhere is the strain more acute than in New Caledonia, a former Napoleonic penal colony 1,000 miles from Australia’s eastern coast that drew billions of dollars in investment when the metal reached a record before the financial crisis. Now, an island with 15 percent of the planet’s reserves has become a cautionary tale for an industry unwilling to curtail supply.
“The whole of the island is a lump of nickel,” said David Wilson, an analyst in London for Citigroup Inc. “We’re now starting to see capacity closures at the currently low prices, but the question is: are these cuts enough, does the industry need to see more? I think the answer is more cuts are needed given the extent of inventory overhang.”
Of the 2 million metric tons of global nickel capacity, only 16,000 tons was shut down last year, according to Morgan Stanley, which estimates 70 percent of the world’s mines have been losing money as prices fell.
Standard Chartered Plc says the red ink is bigger in nickel than for any other base metal — at a time when all of them are in bear markets and most commodities are mired in prolonged slumps because of oversupply.
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