The Next Step for Nickel

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Non-ferrous Metals

Last week we read of the explosion at Apache’s massive gas handling plant at Veranus Island about 60 miles off Australia’s northwest coast. The disruption to critical gas supplies will take four weeks to bring back on stream and meanwhile deprive numerous metal processing and mining operations of energy supplies when they are all operating at maximum capacity to meet demand. Then this week, BHP was forced to close down the furnace at its Kalgoorlie nickel smelter nearly a year early because it has become unsafe. The furnace has been running flat out to meet demand and the strain has taken its toll, the next major maintenance program was not planned for another year from now. The closure will halt production at BHP’s Kwinana refinery for at least four months and cut global supply by almost 2%. It is estimated the shutdown of Kwinana will cut BHP’s nickel sales by 28,000 mt over the next 12 months, total sales in the year to June 2007 were about 101,000 mt from Kwinana. BHP’s share price fell 4.4% while nickel prices jumped nearly 6% this week to US$24,585/mt, before easing yesterday. Traders in Sydney have commented they see the price going much higher and wouldn’t sell stocks under US$ 25,000/mt.

So what’s the reality — is nickel heading for another spike driven by supply side issues? Our take: no. The nickel price has drifted off from a record high of US$51,800/mt a year ago due to falling demand from the stainless steel industry that takes some 75% of production and new production coming on stream which has pushed the market into a sizable surplus. The problems at Kalgoorlie are not good news for BHP or for the Kiwana refineries contract clients but the market as a whole will be able to meet the shortfall.

–Stuart Burns

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