http://www.reuters.com/article/rbssI...
Wed Oct 29, 2008 8:47am EDT
By Anna Stablum
LONDON, Oct 29 (Reuters) - Many nickel projects are expected to be delayed because they have become unprofitable due to falling prices, but this could cause future supply tightness and push prices up again, industry sources said.
"The current financial turmoil is setting the stage for another boom," Simon Purkiss, managing director of London-listed European Nickel (ENK.L: Quote, Profile, Research, Stock Buzz) told a Nickel Day seminar late on Tuesday.
London Metal Exchange three-months traded nickel futures MNI3 hit a record high of $51,800 a tonne in May last year spurring exploration and new projects around the world.
But since then substitution, falling demand from its key consumer the stainless steel sector and recently a global financial crisis, in which all commodities have been sold off, drove prices down to $12,300 a tonne on Wednesday.
"With nickel down at $4.5 ($9,921/t) or $5 ($11,023/t) per pound some 40 odd percent of the world's nickel suppliers are under water and losing money," said Dale Rogers, managing director of Albidon (ALB.AX: Quote, Profile, Research, Stock Buzz)(ALDq.L: Quote, Profile, Research, Stock Buzz).
The low nickel price, depressed equity markets and credit constraints are now forcing many producers to stop expansions of existing projects and postpone new projects setting the stage for a tight nickel market when global demand picks up again.
"One would expect at some stage nickel prices will respond," Albidon's Rogers told the seminar organised by the Mining Journal.
Albidon has just started to produce nickel at its Munali nickel project in southern Zambia and it expects to ramp up to full production in the first quarter of 2009.
"Just below $4 a pound we break even ... that is $1 or $2 a pound better than most," he said.
European Nickel's Purkiss cited Standard Bank and expected 150,000 tonnes of nickel supply, including Chinese nickel pig iron, to be cut this year in an overall global market of 1.4 million tonnes of nickel output.
"There are other projects that will need to also take action because they are not profitable in these markets," said Nick Poll, managing director at Mirabela Nickel (MNB.TO: Quote, Profile, Research, Stock Buzz)(MBN.AX: Quote, Profile, Research, Stock Buzz).
"So the long-term outlook for the nickel price is excellent," he said at his presentation at the Nickel Day.
The Australian miner said the aim was to start production at its Brazilian site Santa Rita by mid-2009 and because of cash constraints it had decided to halt further exploration.
"We think it is prudent," Poll said.
Longer term the fundamentals for nickel were sound with firm demand expected from the emerging economies Brazil, Russia, India and China and that project delays would keep the market tight for years to come, said European Nickel's Purkiss.
"The BRIC economies are still growing ... nickel does still have the strongest fundamentals of any of the commodities," he added. (Reporting by Anna Stablum, editing by Peter Blackburn)
© Thomson Reuters 2008 All rights reserved
