By Leia Michele Toovey- Exclusive to Nickel Investing News

^[1]Nickel futures fell on Wednesday after Cuba announced that its nickel operations escaped the wrath of Hurricane Ike ^[2]. Production in the region was halted on Sunday before Ike made landfall with 195-kph winds in the eastern province of Holguin, where the mines and plants are located.

Operations will resume shortly as the country's nickel mines and refineries made it through the storm without any major damages. Cuba ^[3] is one of the world's top nickel producers and operates three mines.

On the MCX, the benchmark September nickel MNKU8 was down 0.79 per cent at Rs 837.1. London Metal Exchange nickel MNI3 is still down about 30 per cent this year to around US$18,600 a tonne, two-thirds of its all-time high of US$51,800 in May last year.

Of the six major base metals, nickel has been the most volatile performer over the past several months. A major catalyst has been slowing global demand for the metal; while the struggling U.S. economy and the collapse in the housing sector have also contributed. The turn of  stainless steel producers to use less expensive nickel pig iron ^[4] when nickel prices surged last spring is also to blame when it comes to nickel's price collapse.

 The head of Mincor Resources (MCR.AX), Australia's third largest nickel miner, expects falling world nickel prices due to a supply glut will persist until more producers cut supplies. Plummeting nickel prices have already prompted a handful of producers to cut nickel supply or defer expansion plans. In August, Xstrata Plc (XTA.L) suspended mining at its Falcondo operation in the Dominican Republic, effectively removing 10,000 tonnes from the world supply pool. Australia's biggest producer, BHP Billiton Ltd (BHP.AX) idled its Kalgoorlie nickel smelter and Kwinana refinery in June for four months of repair work, while Minara Resources Ltd (MRE.AX) deferred a nickel expansion plan due to high costs. So far, these cutbacks have done little to stabilize nickel's fall.

Chinese nickel pig iron producers that occupy the top part of the production cost curve are also facing struggles. Jinchuan Group Ltd, China's top producer, has cut its production target after delays to a new smelter, potentially cutting annual output by 10,000 to 20,000 tonnes from a target of 120,000 tonnes.  Other Japanese and Chinese stainless steel mills have cut production, or at least switched to some product lines of stainless steel that consume lower amounts of nickel. Stainless steel production in the first quarter of this year was is down 3.0 per cent from a year earlier, however, there are some signs of a recovery, as stainless steel production is actually up 6.5 per cent when compared with the last quarter of 2007.

 The nickel market currently faces another complication to recovery. A slew of fresh nickel production is about to be unleashed as new mines are about to come online. Getting a new mining operation up and running takes years. Before construction can even begin feasibility studies have to be conducted, and then capital needs to be raised. Given the long lead-up time, it's guesswork as to when the market will actually need new production. When nickel shot up to $25/pound last year many miners were eager to capitalize in such a price environment. Now, 16 months later, several of these projects are about to enter production, in a much less favourable market. The opposite situation is currently gripping the molybdenum market.  The market has been demanding new production for some time now, but rests in the lag time waiting for new production to start. Moly Investing News ^[5] has various articles that outline how the same situation that is hindering nickel is aiding moly.

Two mining giants, BHP Billiton Ltd., and Vale have fallen into this predicament. BHP's US$2.2-billion Ravensthorpe ^[6] nickel mine in Western Australia officially opened in May and production rates will be steadily increased until it reaches its 50,000-tonne-per-year capacity in a few years. Ravensthorpe was behind schedule in development, and BHP cited cost overruns in the development phase as the main culprit. Meanwhile, Vale plans first commercial production at its Onça Puma project at the start of next year. It has a capacity of 58,000 tonnes per year of the nickel contained in iron-nickel, and is among several Brazilian operations that are targeted for future start-up.