page title
spacer
Crops
spacer
Livestock
spacer
Energy
spacer
Metals
spacer
spacer
Nickel
Rebecca McCallum
spacer
Daily nickel prices have been volatile in 2008. After increasing to US$33 300 a tonne in early March, prices declined by 70 per cent to around US$9000 a tonne in December. Demand for stainless steel, and therefore for nickel, has declined significantly.
Prices fluctuating significantly
Following weak demand for stainless steel in the second half of 2007, it was widely expected there would be a recovery in consumption of stainless steel during 2008. Hence, demand for nickel remained high in the first half of the year and, combined with disruptions to production, resulted in prices remaining relatively high, averaging more than US$27 000 in the first six months of 2008.

However, as uncertainty regarding the global economic outlook increased and world economic growth weakened, the prospects for increased stainless steel consumption declined and demand for nickel fell rapidly. As well, production of nickel has increased as new mines have begun operating and mines which started up late in 2007 are producing closer to capacity. This resulted in an increase in supply, more than offsetting production disruptions early in 2008. Reflecting this situation, nickel stocks are estimated to have risen by around 20 per cent, to 6 weeks of world consumption by the end of 2008.

As a result of both higher production and falling consumption, the nickel price has fallen significantly since October 2008. Reflecting high prices during the first three quarters of the year, nickel prices are estimated to average relatively high at around US$21 000 a tonne in 2008.

Prices are expected to average lower in 2009, reflecting the full effects of weak consumption and a relatively small decline in production. Stocks are forecast to increase to 7 weeks of world consumption and as a result, the nickel price is forecast to average a further 54 per cent lower in 2009, at around US$9750 a tonne.
NICKEL 1
Consumption declining

Following significant destocking of stainless steel in 2007, production was expected to increase in 2008. However, financial market turmoil and declining consumption growth have resulted in slower than anticipated growth in production of stainless steel and therefore growth in nickel consumption has been significantly lower than expected in 2008, at around 2 per cent. Stainless steel production overall is expected to be lower in 2008 than in 2007 in North America and most of Europe, as a result of lower stainless steel demand and increasing competitiveness of Asian producers.

Growth in stainless steel production has weakened markedly in most developed countries, particularly in North America and Europe, since nickel prices peaked in 2007. High nickel prices during 2007 and into 2008 made austenitic stainless steel (stainless steel containing relatively high concentrations of nickel) relatively expensive and reduced its demand. High prices also resulted in some substitution away from austenitic stainless steels to cheaper alternatives, such as ferritic or duplex stainless steels, which contain less or no nickel.

In addition, production of stainless steel in Asian countries has increasingly comprised stainless steels which use less nickel. Combined with slower growth in industrial production, this has resulted in slow growth in nickel consumption. As a result, world nickel consumption is estimated to have been around 1.35 million tonnes in 2008.

In the first half of 2009, continuing slow world economic growth and weak construction activity is forecast to result in further contraction in stainless steel production in North America and Europe, more than offsetting higher production in Asia. Therefore, nickel consumption is forecast to decline. For the year as a whole, nickel consumption is forecast to decline to around 1.33 million tonnes.
NICKEL 2
Nickel outlook
2007
2008
f
2009
f
% change
spacer
World
Production
kt
1 430
1 383
1 352
– 2.2
Consumption
kt
1 323
1 351
1 329
– 1.6
Closing stocks
kt
 125
 157
 179
 14.0
 – weeks consumption
 4.9
 6.0
 7.0
 16.7
Price
US$/t
37 226
21 050
9 750
– 53.7
USc/lb
1 689
 955
 442
– 53.7
spacer
2006-07
2007-08
2008-09
f
Australia
Production
Mine
kt
191
190
219
 15.3
Refined
kt
118
121
111
– 8.3
Intermediate
kt
57
45
32
– 28.9
Exports s
kt
 166
 166
 150
– 9.6
 – value
A$m
6 372
4 236
1 895
– 55.3
f ABARE forecast. s ABARE estimate.
Low prices forcing significant production cuts
The rapid decline in nickel prices during the second half of 2008 has resulted in a number of producers cutting production or placing mines on care and maintenance. Current low prices mean returns for many producers are now at, or below, the cash cost of production. Some of these producers have already cut production partially or completely, while other producers are expected to do so in the near term.

Industrial disputes and other unforeseen disruptions have also resulted in nickel production losses in Colombia, Australia, South Africa, Venezuela and elsewhere. Overall, world nickel production is estimated to have declined by more than 3 per cent in 2008, to 1.38 million tonnes as declines in production at existing operations more than offset production at new projects.

As prices are forecast to remain low in 2009, particularly in the first half of the year, production at existing operations is expected to decline further. Further high-cost mines are expected to be placed on care and maintenance or to reduce output, while new mines are forecast to start up relatively slowly. For example, Vale has announced the Goro mine in New Caledonia, expected to come online in 2009, will produce only around 6000 tonnes of nickel in 2009, which is around 10 per cent of capacity. For 2009 as a whole, world nickel production is forecast to decline to around 1.35 million tonnes.
Australian mine production increasing…
Australian mine production of nickel is forecast to increase by around 15 per cent, to 219 000 tonnes in 2008-09. While a number of small mines have been placed on care and maintenance, increased production at BHP Billiton’s Ravensthorpe project and Western Areas’ Forrestania development is expected to offset declines elsewhere and to result in higher mine production overall.
spacer
Capacity losses related to market conditions
 
company country
annual capacity (tonnes)
spacer
Norilsk Australia
20 000
Xstrata Dominican Republic
29 000
First Nickel Canada
3 000
Vale Inco various
40 000
Rezhnickel/ Ufaleynickel Russian Federation
15 000
Eramet New Caledonia
10 000
 
…but refined production lower
In 2008-09, refined nickel production in Australia is forecast to fall by more than 8 per cent, to 111 000 tonnes. Disruptions to gas supplies in Western Australia from mid-June to September 2008 resulted in lower production at BHP’s Kwinana refinery. A shutdown to rebuild the Kalgoorlie smelter also affected feed to the Kwinana refinery, further contributing to the decline in output. As a result, despite forecast higher output for the remaining three-quarters of 2008-09, refined production for the year as a whole is forecast to decline.
Export earnings down
The fall in nickel prices and lower refined nickel production are expected to be partially offset by higher ores and concentrates output and an assumed lower Australian exchange rate. Overall, Australia’s export earnings for nickel are expected to decline by 55 per cent in 2009, to around $1.9 billion.