Nickel Prices To Firm Up

- January 12th, 2010

By Kishori Krishnan Exclusive To Nickel Investing News
The signs are clear. Nickel is on a comeback trail.
The fallout from the financial crisis that afflicted the world economy saw nickel prices fluctuate wildly.
LME prices peaked at just over US$ 52,000/t in May 2007, on the back of strong demand and low stocks, but fell by over […]

By Kishori Krishnan Exclusive To Nickel Investing News

The signs are clear. Nickel is on a comeback trail.

The fallout from the financial crisis that afflicted the world economy saw nickel prices fluctuate wildly.

LME prices peaked at just over US$ 52,000/t in May 2007, on the back of strong demand and low stocks, but fell by over 80 per cent by the end of 2008, as demand collapsed.

By the fourth quarter of 2009, however, prices had recovered to US$ 18,500/t. And the road ahead, appears paved with gold.

Demand for nickel is predominantly driven by stainless steel production, which accounts for around two-thirds of total nickel consumption.

World stainless steel output was up 12.5 per cent in Q3.

If one recalls, production of crude stainless steel began falling as early as the third quarter of 2007. In 2008, output fell by 7 per cent year-on-year, while the first three quarters of 2009 saw a cut in production of crude stainless steel by around 15 per cent, year-on-year.

Production of crude stainless steel is forecast to rise by around 8 per cent in 2010.

Recovery seen

Although global demand for nickel has fallen for three consecutive years, a recovery in the global economy should follow through to see consumption of increase in 2010.

Roskill forecasts nickel consumption will increase by around 7 per cent in 2010.

As demand for nickel increases across the globe, production is likely to follow suit. A market surplus of around 75,000t is forecast for 2010, as output of primary nickel increases to 1.4Mt.

Even in Western Australia there are signs that the nickel industry is recovering. One new miner has produced its first ore.

It may be recalled that 13 nickel mines have closed in WA in the last 18 months due to a slump in prices. However the market has recovered slightly in recent months, which was enough to spur Forrestania miner Kagara on.

The company pulled its first ore from the ground last week, thanks to a joint partnership with an adjoining nickel mine, who had already built infrastructure.

Executive chairman Kim Robertson says he expects to see other similar partnerships form to rebuild the industry.

Mine disputes

What could also aid demand are the mine disputes that may well propel metal price hikes. 2010 will see a major contract expire for nickel later this month.

“Strikes in copper could lead to price spikes and the continued threat is another crutch for positive sentiment in the market,”   said Paul Robinson, group manager, non-ferrous metals at consultancy CRU Group.

“..In nickel it’s also valid to say they (strikes) will be greeted positively for prices,” said Andrew Keen, HSBC’s head of metals and mining research, EMEA.

Green signal

What will also ensure supply is the news that Brazilian mining company Vale SA has said that it plans to restart 50 per cent of its nickel smelter capacity at its Sudbury, Ontario operation by the end of January, despite the ongoing strike at the company’s Canadian operations.

Vale SA, the world’s second-biggest nickel producer, said it isn’t ruling out a restart of its Voisey’s Bay nickel mine in Canada.

Output at Voisey’s Bay ceased on August 1 when 120 miners affiliated to the United Steelworkers’ Union walked off the job in support of striking workers at Vale’s larger Sudbury nickel and copper mine in Ontario.

Analysts maintain that the substantial production cutbacks implemented by the mines in late 2008 and early 2009 as regards nickel, zinc and iron ore in particular have been replaced by the start-up of closed capacity.

A challenge for the mining industry heading into 2010 is the fact that these start-ups have to some extent been incentivised by high metal prices rather than strong physical demand.

Corporate news

Issues have also been resolved between Geovic Mining Corp (TSX: GMC)(OTCBB: GVCM) and the Societe Nationale d’Investissement du Cameroun.

Geovic indirectly owns 60.5 per cent of Geovic Cameroon plc, the entity that owns the Nkamouna cobalt/nickel/manganese project, while SNI owns or represents 39.5 per cent.

Prophecy Resource Corp (TSX-V: PCY) has entered into an agreement with VMS Ventures Inc (TSX-V: VMS) whereby Prophecy has been granted the option to earn a 100 per cent interest in the Lynn Gabbros property located in Manitoba, Canada near the Company’s Lynn Lake Nickel-Copper project.

The Lynn Lake Nickel Camp is located in northern Manitoba.

Liberty Mines Inc (LBE-TSX) has provided an operational update on the recent technical reports for the producing McWatters and Redstone nickel mines and the Hart nickel project which is in the final permitting stage.

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