Nickel Notes To Soar Again

- December 22nd, 2009

By Kishori Krishnan Exclusive To Nickel Investing News
They have done it again. After a 6-month hiatus, Russia is set to re-instate its 5 per cent export tax on nickel next month.
For the past half year, the government has been debating the possibility of linking the export duties for nickel and other market metals to the […]

By Kishori Krishnan Exclusive To Nickel Investing News

They have done it again. After a 6-month hiatus, Russia is set to re-instate its 5 per cent export tax on nickel next month.

For the past half year, the government has been debating the possibility of linking the export duties for nickel and other market metals to the market prices.

Nickel surged 4.9 per cent to $17,950 a metric ton on the London Metal Exchange on Monday, as Russia’s government decided to reimpose a 5 per cent tax on nickel exports that was suspended in January.

Russia is home to OAO GMK Norilsk Nickel, the world’s largest producer of the stainless-steel ingredient. Norilsk Nickel forecasts nickel mining of 232,000 ton at Russian enterprises in 2009.

The news sent the stainless steel component up 3 per cent on December 22. A rebound in stainless steel demand is set to boost nickel prices even further.

Stainless steel producers, accounting for two thirds of nickel demand, have been using stocks or producing lower quality stainless steel grades ever since nickel prices hit a record-high monthly average of $23.65/lb in May 2007.

A Reuters News report had quoted several London-based analysts who said production cutbacks by nickel miners this year also meant less material and potentially higher prices, “when consumers decide the time has come to buy”.

The time has, undoubtedly, come.

Nickel prices

Major production sites for nickel include Sudbury region in Canada, New Caledonia and Norilsk in Russia. Russia contains about 40 per cent of the world’s known resources at the Norilsk deposit in Siberia.

The Russian mining company Norilsk Nickel obtains the nickel and the associated palladium for world distribution.

This year, nickel price have experienced severe fluctuation. Prices reached over US$20,000 per ton in August and dropped to US$16,500 per ton at the end of September.

Late October, nickel prices touched US$19,500 per ton again, but fell to US$15,800 per ton early this month.

On the London Metal Exchange, nickel turned out to be one of the strongest performers on Tuesday, with the metal garnering fresh support.

Strong bet

The Communicative Technologies Department of Russia’s Ministry of Industry and Trade told RusBusinessNews that the consumption of nickel in the domestic market for 2009 had increased, as compared to 2008.

The ministry forecast nickel output in Russia to push from 225,000 to 240,000 tonnes in 2010. A year ago, domestic consumption amounted to 175,000 tons.

For 2009, the ministry of Industry and Trade has forecast the export of nickel of around 190,000 to 205,000 tons (last year it was 245,000 tons).

The ministry aims that the amount of Russian nickel shipped to external markets may reach 215,000 to 225,000 tons in 2010.

Corporate news

Following suit, Russia’s Norilsk Nickel said it would increase production in 2010 to 300,000 tons.

VladimirStrzhalkovsky,CEO of Norilsk Nickel maintained that with the increase of nickel, income too would increase every quarter.

Norilsk Nickel’s previous report said that the revenue in the first quarter of 2009 was US$5 billion, down by 51 per cent versus US$8.3 billion in the same period last year.

Net profit dropped to US$439 million from US$2.6 billion, down by 84 per cent.

Incidentally, United Co Rusal’s initial share sale has been approved by Hong Kong’s Securities and Futures Commission, making it the first Russian company to list in the city, Bloomberg reported.

Rusal plans to sell 10 per cent of its shares to help repay $17 billion debt. Its borrowings almost doubled last year after Rusal bought 25 per cent of OAO GMK Norilsk Nickel, Russia’s biggest mining company, for $7 billion in cash and a 14 per cent Rusal stake.

Morover, the expiry of Norilsk Nickel’s US$3 billion loan is coming up by the end of June 2010.

The company said the drop in nickel production in 2009 was due to lower output at Norilsk’s assets in Finland, which Strzhalkovsky expects to pick up in 2010.

Limited cash resources have also resulted in Alba Mineral Resources relinquishing seven of the eight nickel licences it holds in Sweden.

The status of the company’s licences in Ireland, Scotland and Mauritania remain unchanged.

The company says it continues to seek additional funding to advance its exploration projects.

Also eager to sell and make a tidy packet of US$3 billion to US$7 billion for its West Australian and Colombian assets is BHP Billiton.

Chinese buyers have been reported to be best placed to buy the assets.

BHP Billiton has also pulled out of a US$2 billion nickel project in the southern Philippines, selling its 40 per cent stake to a local partner.

The project was BHP’s only mining venture in the Southeast Asian country. Analysts maintain that this could signal the miner’s exit from nickel.

In 2007, the Philippine government had announced that BHP would invest up to US$2 billion in the country. The mine is estimated to have 200 million tonnes of nickel ore reserves with 1.3 per cent nickel. BHP is said to have spent about US$3 million on exploration.

The Philippines is targeting its mining sector to attract up to US$14.5 billion in investments by 2013. But only around US$2.4 billion has flowed in since 2004, due to communist insurgencies, disputes with local communities and partners and opposition from the Catholic Church, a report said.

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