nickel stocks in decline
World nickel consumption is forecast to exceed production by about 13 000 tonnes in 2006, leading to a decline in nickel stocks. In the eight months to the end of August 2006, nickel stocks held by the London Metal Exchange (LME) had declined by 85 per cent, or about 30 000 tonnes. Some of this decline is attributable to increased stockholding by consumers to safeguard against possible supply disruptions. Overall, total world nickel stocks are forecast to decline by about 15 per cent in 2006 to the equivalent of 6 weeks of consumption.

Nickel stocks are forecast to fall by a further 5 per cent in 2007 to 5.7 weeks of consumption. However, the removal of some speculative elements from the spot market should ensure some easing of prices to better reflect fundamental market conditions. Speculative activity is likely to decline as the large Ravensthorpe project in Western Australia and the Goro nickel project in New Caledonia near completion. Significant risks to production remain, however, particularly if the strike at Inco’s Voisey’s Bay mine in Canada (54 000 tonnes a year) is prolonged or there are further delays in the completion of the Ravensthorpe and Goro mines.

nickel outlook 2005 2006 f 2007 f % World change  Production kt 1 283 1 323 1 373  3.8  Consumption kt 1 245 1 336 1 377  3.1  Closing stocks kt  138  125  121 – 3.2  – weeks consumption  7.1  6.0  5.7 – 5.0  Price US$/t 14 749 21 961 18 905 – 13.9 USc/lb  669  996  858 – 13.9 2004 2005 2006  Australia -05 -06 s -07 f  Production  Mine kt 192 184 213  15.8  Refined kt 126 111 114  2.7  Intermediate kt 115 99 103  4.0  Exports s kt  215  199  228  14.6  – value A$m 3 685 3 509 5 825  66.0 s ABARE estimate. f ABARE forecast. download excel data

world consumption
World nickel consumption is forecast to rise by 7 per cent to 1.34 million tonnes in 2006 and a further 3 per cent in 2007 to 1.38 million tonnes. Based on information from the International Stainless Steel Forum, it is estimated that world production of crude stainless steel rose to a record 6.6 million tonnes in the first quarter of 2006, with Asia accounting for half of this production. China’s economy is forecast to grow by 10.4 per cent in 2006 and a further 9.3 per cent in 2007, which is expected to continue to support growth in stainless steel (and hence nickel) consumption, especially in construction and manufacturing. In the first half of 2006, China accounted for 16 per cent of world nickel consumption. The United States accounted for 11 per cent and the European Union for 33 per cent. However, little growth is expected in these latter two regions in 2006.

The forecast lower growth rate for world nickel consumption in 2007 partly reflects an expected substitution toward the use of lower nickel content stainless steel in response to high nickel prices (see box). For example, Boashan Iron and Steel Company, China’s largest steel producer, has announced plans to increase production of lower nickel content stainless steels, such as 400 series, at the expense of higher nickel content 300 series. Substitution into 200 series stainless steels, which contain about half the nickel of 300 series, is also occurring. China’s largest three stainless steel producers also temporarily cut stainless steel production by 20 per cent (120 000 tonnes) in July 2006 in response to high nickel prices. These producers have hinted that stainless steel production could be cut again if nickel prices do not fall.

world production affected by interuptions and delays
World nickel production is forecast to rise by 3 per cent to 1.32 million tonnes in 2006 and by nearly 4 per cent in 2007 to 1.37 million tonnes. Mine production in 2006 is forecast to increase with the ramping up of the Voisey’s Bay mine in Canada toward full capacity (54 000 tonnes a year) and increased refined capacity in Asia. Partly offsetting these increases in 2006 have been lower mine and refined production from Australia and production losses at refineries in Indonesia and Canada.

PT Inco Indonesia downgraded its production target for 2006 by about 4000 tonnes following a fire at its Sorowako operations in May. In addition, PT Aneka Tambang announced a production loss as high as 6000 tonnes from the shutdown of its new FeNi III smelter caused by a leak from the metal tap hole of the furnace in July. Repairs to the furnace are expected to take three months and the smelter will be offline until October. Inco has also downgraded 2006 production expectations because of disruptions at its smelting and refining operations in Canada. An equipment failure at the Sudbury operations and damage to a furnace at Inco’s Manitoba operations are estimated to have cost Inco about 8000 tonnes of refined nickel output.

The ramping up of the Voisey’s Bay mine in Canada, toward 54 000 tonnes a year, was the main source of new mine production in the first half of 2006. However, a quarter of the workforce at this mine went on strike on 28 July 2006 after labor negotiations between Inco and the unions broke down. In response, Inco temporarily shut down the Voisey’s Bay mine. Inco claims to have sufficient stockpiles of nickel concentrate to maintain refined output in the short term. However, if this strike continues for an extended period there could be a significant effect on nickel production, placing upward pressure on world nickel prices.

BHP Billiton and Inco continue to experience difficulties at their respective nickel projects, which are expected to maintain upward pressure on nickel prices. BHP Billiton recently announced that capital costs at its Ravensthorpe nickel project in Western Australia
(50 000 tonnes a year) are likely to increase by a further 30 per cent. Capital expenditure for the project will now exceed US$1.7 billion, about US$700 million higher than originally budgeted. BHP Billiton also indicates that the Ravensthorpe project is under schedule pressure, which implies the date of completion could be beyond the planned startup date of mid-2007. Capital costs at Inco’s Goro nickel project (60 000 tonnes a year) in New Caledonia now look set to exceed the previous forecast of US$2.15 billion. The startup date is also expected to be delayed from late 2007 to 2008. Construction was disrupted by environmental activists for most of April and further protests are likely.

new production for 2007
Major sources of new mine output in 2007 are expected to be the startup of the Berong mine (capacity of 15 000 tonnes a year) in the Philippines and the Caldag mine (20 000 tonne a year capacity) in Turkey in late 2006. Higher nickel refining capacity is expected from Jinchuan, China’s largest nickel producer, which is increasing annual capacity by up to 50 000 tonnes.

mine and refined output declined in Australia in 2005-06 but to recover in 2006-07
Australian mine production fell by 4 per cent in 2005-06 to 184 000 tonnes as production was disrupted by cyclones in Western Australia. Production from the Sally Malay mine was also disrupted by an open pit wall slippage in January. The open pit was subsequently closed and the remaining ore is expected to be mined from underground.

Australia’s production of refined nickel fell by 12 per cent in 2005-06 as a result of lower mine output. In addition, production at BHP Billiton’s Yabulu nickel refinery in Queensland was interrupted by an expansion project. Australian nickel exports declined by around 7 per cent to 199 000 tonnes in 2005-06 as a result of this lower production. However, reflecting higher export prices, the value of exports fell by less than 5 per cent to $3.5 billion.

Mine production is forecast to recover in 2006-07, increasing by 16 per cent to 213 000 tonnes as mine production returns to normal in Western Australia, assuming an absence of unusually severe cyclones. Production increases are also expected from upgrades at LionOre’s Maggie Hays and Black Swan mines that are due for completion in the last quarter of 2006.

Refined production is expected to increase by nearly 3 per cent to 114 000 tonnes in 2006-07 as a result of higher mine output. The lower growth forecast for refined production, relative to mine production, in 2006-07 reflects the reduced capacity at Yabulu nickel refinery during an expansion. Refined nickel output is likely to increase substantially when this expansion is completed in late 2007. The value of Australian nickel exports is forecast to grow by 66 per cent to $5.8 billion in 2006-07.