Vale Settles Sudbury Dispute

Reuters covered the deal reached by Vale and the United Steelworkers Local 6500 and 6200 representing production and maintenance employees at the company’s operations in Sudbury and Port Colborne, Ontario in an article this week. About 3,000 workers went on strike last July in Sudbury in a dispute over pensions, bonus issues and contract language. A separate strike at Vale’s Voisey’s bay nickel mine in eastern Canada began last August. The market had been expecting a return to work sometime soon so the resumption of full production during the third quarter is unlikely to impact prices generally. The signing of a new five year agreement is likely to be followed by a slow ramp up in production as workers are gradually re-trained and idled equipment re-started.  The plant has been far from closed during the strike however; Sudbury has been operating at around 50% of its 150,000 tons per year capacity since January. Production will likely add to a seasonal second half inventory build up in global nickel stocks but if LME stock levels do not rise in H2 2010 it will be a bullish sign for prices suggesting that extra production is being absorbed by industry instead of the usual trend of increased inventory levels at that time of year.

Physical delivery premiums should drop in the North American market as production picks up and more metal becomes available domestically. The Sudbury and Voisey’s Bay operations together produce about 10% of the world’s nickel, as well as sizable amounts of copper, cobalt and precious metals. While all non-ferrous metals have declined during the second quarter, nickel, copper and cobalt have slightly better fundamentals with falling inventory levels supporting prices. The resumption of production by Vale was factored into H2 supply expectations so the added tonnage is unlikely to materially impact supply or prices beyond the easing of North American premiums charged for physical delivery mentioned above.

–Stuart Burns

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