By Leia Michele Toovey- Exclusive to Nickel Investing News

Nickel prices entered the New Year with upward momentum, as the annual commodity index rebalancing was positive for the base metals.

Now, it is one month into the year and the gains have halted.  London Metal Exchange three-month nickel closed Friday at US$11,150 a metric tonne, down 8 per cent on the week, and off 17 per cent since the start of the year. LME nickel prices have fallen by around 80 per cent from their record high near US$50,000, hit in May 2007.

Macquarie Bank forecasts nickel to average around $11,023 in 2009, and Standard Chartered forecasts it to average $10,075.

Nickel is taking a beating as the global stainless steel sector struggles. Sixty per cent of nickel’s production is used in stainless steel, and with steel demand slim, nickel is expected to retreat. There are also reports that stainless-steel mills are still using nickel supplies bought in 2008 contracts for their 2009 needs, As a result, nickel demand is forecast to be flat at best in 2009, resulting in a surplus of 86,000 tonnes, versus a 36,000-tonne surplus in 2008.

So how will the industry respond in 2009? If the price does not stabilize, further output cuts will be in store. Nickel 18 percent of world nickel supply was cut in 2008; however, more cuts have already taken place this year. The only possible bright spot on the horizon remains the planned government stimulus packages expected to start taking effect later in ’09. With government spending focused on local infrastructure development, stainless steel demand will rise, and this will turn increase the need for nickel.

Company news

French miner Eramet has won an exploration license for two nickel deposits in New Caledonia. These two new deposits, the Prony and Pernod, could potentially double the company’s nickel output. The exploration phase will take up to nine years, followed by a three-year feasibility study for local processing of the ore. The project would involve production capacity of some 60,000 tonnes of nickel a year. The group is targeting deliveries of 51,000 tonnes of nickel for 2008 after scaling back production in response to a sharp downturn in demand. For this year, it has said it will trim output to 50,000 tonnes.

Vale will limit nickel production at its Voisey’s Bay mine in Eastern Canada to an average of 55,000 metric tonnes over the next four years. Vale agreed last week with the province of Newfoundland and Labrador to limit shipments of concentrate to smelters in Central Canada after the two sides missed a deadline to come up with a construction schedule for a low-cost hydro-metallic processing plant in the province.

BHP has been in disagreement with Asiaticus Management Corp over when to start commercial production at the Pujada nickel site, a debate that has reached the courts. If both firms fail to settle the dispute, BHP could buy out Asiaticus’ 60 per cent stake in the project or Asiaticus, controlled by Filipino businessman Peter Tan, could purchase BHP’s 40 per cent interest. The Philippine group has accused the Anglo-Australian miner of moving too slowly in developing Pujada, estimated to have 200 million tonnes of nickel ore reserves with 1.3 percent nickel. Asiaticus had cancelled its joint venture agreement with BHP due to the dispute. In May 2008, the local firm obtained a ruling from a Philippine court barring BHP from the Pujada site, prompting the foreign miner to halt exploration activities. BHP sought help from a Singapore arbitration panel, which in December upheld the validity of the joint venture. The ruling thus voided the restraining order issued by a Philippine court. BHP has committed to invest up to $2 billion in the mine, including a nickel processing plant, and has spent about $3 million so far on exploration.

Diamondex Resources Ltd. has formally notified Canada Nickel Corp. for failure to cure a contractual default, of the termination of the option agreement between Canada Nickel and the Company on the James Bay Lowlands – Nickel Bay property. The agreement required Canada Nickel to advance $5,000,000 to Diamondex for expenditures on the James Bay Lowlands property in the first year of the Agreement in order to maintain the option and earn its next interest. On October 31, 2008, Diamondex requested that Canada Nickel, in accordance with the agreement, an advance of $2,000,000 in connection with the first year requirements, including reimbursement of the amount advanced on Canada Nickel’s behalf by Diamondex. Canada Nickel failed to do so and, in accordance with the agreement, Diamondex delivered a notice of default to Canada Nickel on December 16, 2008. Canada Nickel failed to cure the Default by January 15, 2009, as required, and Diamondex has given notice of termination.

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