The losses incurred by nickel mines due to low prices continue to pile up with Canada’s Sherritt International Corp and Japan’s Sumitomo Corp announcing this week more than $1.7 billion in losses from their Ambatovy nickel mine in Madagascar.
The reason? Nickel prices are at 12-year lows and it’s wreaking havoc on operations. With 60,000 metric tons of nickel mined a year at Ambatovy, the continued slump in commodities has taken a significant toll on miners and traders alike, forcing asset sales, losses and write downs, according to a report from The Globe and Mail.
“There is a possibility that we may post impairment losses in additional projects,” Sumitomo stated in a press release.
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Slumping demand in stainless steel is the main source of nickel’s surplus. The glut in supply is putting downward pressure on prices for the metal, which recently dropped to its lowest mark in more than 12 years.
The Madagascar nickel project is one of the world’s largest and has suffered from both the global commodity slump as well as slowing Chinese demand, reports The Wall Street Journal.
“Our earlier outlook was too optimistic,” Hiroyuki Inohara, Sumitomo CFO, told the WSJ.
Demand Slowdown Not Stopping in China
China continues to produce steel in spite of a slowdown in domestic demand, according to our own Stuart Burns. “China’s steel exports rose by almost 20% in 2015 to a record 112.4 million mt. To put that in perspective that is enough to meet demand in Germany and Japan for a year and still leave almost 9 mmt to spare,” he wrote.
However, that amount of exports is not sustainable in the medium term. With global demand stagnant and trade tensions on the rise, exports will have to find a way to decrease this year either on their own or through anti-dumping actions.
How will base metals fare in 2016? You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds: