Lackluster Nickel Price Performance Continues

Nickel prices reached an 11-month low of $8,700 per tonne on the LME last week, and according to Reuters, the base metal has now experienced a year-to-date decline of over 10 percent.

That’s a far cry from where prices were just a few months ago. In March, nickel was up around $11,000 due to an attempt to cut production in the Philippines. Regina Lopez, the country’s acting department of environment and natural resources secretary, had announced plans to shut down over half of the country’s 41 mines.

However, on May 4, Lopez failed to secure a permanent government position, and the country’s Chamber of Mines said it planned to undo her work. Nickel prices have fallen since then, despite the fact that the Philippines’ nickel output declined by 36 percent in Q1 2017.

Recently, New York investment bank Goldman Sachs (NYSE:GS) responded to those circumstances by downgrading its three-, six- and 12-month nickel price forecasts to $9,000; previously they sat at $12,500, $11,000 and $11,000, respectively.

Goldman Sachs expects nickel prices to remain low this year and for most of 2018, until a supply response from China or elsewhere reduces the forecast nickel surplus. The firm is calling for a surplus of 37,000 tonnes in 2017 and 100,000 tonnes in 2018.

Impact on nickel miners

It is important to note that in this low price environment, 50 to 60 percent of nickel mining firms are operating at a loss. Analysts say the highest-cost nickel mines are located in the Dominican Republic, Greece, Cuba, Western Australia and New Caledonia.

Many mining firms have been vocal about the state of the nickel industry and its impact on their operations. Eramet (EPA:ERA) said losses at its Societe Le Nickel operations are “not sustainable,” and Vale (NYSE:VALE) has announced plans to suspend operations at its Birchtree mine in Manitoba on October 1 due to low nickel prices.

Others have been more successful. BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) has an application before the Environmental Protection Authority of Western Australia to dig two new mines and extend the life of its Nickel West project. The firm’s existing mines are currently unable to produce enough ore to supply the company’s Kalgoorlie nickel smelter.

Interestingly, the International Nickel Study Group is predicting a global primary nickel supply shortage in 2017, meaning that some nickel price support could be around the corner. That said, the group recognizes the impact that financial, economic and political uncertainties could have on the nickel market, and notes that “effects of the above on both the supply and demand for nickel are not fully known.”

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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.