By Leia Michele Toovey- Exclusive to Nickel Investing News
For the nickel market to improve in 2009, two key events need to transpire. First off, demand from steelmakers needs to improve, and secondly, China’s economy needs to grow. Currently, steelmakers are running at about 50 per cent capacity, and China recently reported its economy grew 6.8 per cent in the fourth quarter, the slowest pace in seven years.
Nickel on the London Metal Exchange averaged $21,220 a metric tonne last year. The three- month contract traded today at $10,999 a ton. This year, estimates suggest that the nickel price should be an average $11,000 to $12,000 a tonne. This week, nickel gained momentum in the futures market. At the MCX, nickel January contract is trading upward by 5.19 per cent, February contract jumped 4.57 per cent to Rs 58.40.
Supply cutbacks are paving the way for the metal to have a swift rebound. For 2009, nickel production is estimated to decline by 250,000 tonnes as several producing mines have shut down or cut back, and many planned projects have been delayed. As the supply side is being constricted, the demand side of the nickel equation is expected to rebound. These supply cutbacks should allow nickel prices to climb quickly when demand returns to its historic growth pattern.
PT Aneka Tambang (Antam), Indonesia’s second-largest nickel producer, expects global consumption to fall 30 per cent this year as the worldwide recession slows demand and European steel mills reduce output. On Wednesday, Antam fell as much as 4.6 per cent on the Indonesia Stock Exchange, the biggest intraday decline in more than a week. A weak economy in China has shrunk the company’s exports. Although China is moving forward with an infrastructure building plan, they will likely fill the need for metals with their domestic supply. China, the world’s biggest metals buyer, purchases about a quarter of Antam’s nickel ore exports. In Europe, destination for half of Antam’s ferronickel shipments, stainless steel mills have reduced capacity use since the fourth quarter of last year to only about 40 per cent Antam said in November that earnings for the nine months to September dropped 58 per cent from the previous year. Late last year the company announced it would shut down one of three smelters in the second quarter of 2009, cutting ferronickel output to 12,000 tonnes this year from about 17,000 tonnes last year
Vale Inco has stopped shipping concentrate from its Voisey’s Bay mine in northern Labrador, as a disagreement continues over development of a processing facility in Newfoundland. Earlier this week, Vale Inco instructed employees not to ship any more concentrate from its Labrador mine. Until the Long Harbour plant is built, Vale Inco is processing the nickel concentrate at facilities elsewhere in Canada. Vale Inco public affairs official Bob Carter reports that the stop in concentrate shipments is an agreement the company has made while the final Long Harbour plan is unresolved. The company was originally expected to deliver a final package on Long Harbour by December 31. The government provided the company with a three-week extension because it evidently had problems with a draft version. Neither the government nor the company will identify what the outstanding issues are.
Sherritt International’s Ambatory mining project needs nickel prices to double before it is economically feasible. The Madagascar based project is owned 40 per cent by Sherritt International, with Montreal’s SNC-Lavalin Group, Somitomo of Japan and Korea Resources as partners. Sherritt’s Chief Finance Officer Dan Chambers said today Ambatory now has an estimated capital cost of more than $3.5 billion U.S. and restructuring is urgently needed. Chambers said Ambatovy, targeted to produce 60,000 tonnes annually and 5,600 tonnes of cobalt with start-up in 2010-2011, needs a minimum nickel price of $10 U.S. a pound to be economically viable. The metal is currently trading around $5.30 a pound.