06/03/2001 - 21:00

Nickel rides weak Aussie

06/03/2001 - 21:00


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WA will depend even more on a weak Australian dollar to preserve its prosperity in the next year, as commodity prices continue to come under pressure, with nickel a prime example.

Nickel rides weak Aussie
WA will depend even more on a weak Australian dollar to preserve its prosperity in the next year, as commodity prices continue to come under pressure, with nickel a prime example.

As a leading producer (about 12 per cent of global production), the State is one which is benefiting from highly competitive prices, in Australian dollars, so that a declining demand for nickel is offset to a large degree.

International prices, in US dollars, are now 40 per cent below the peak of a year ago and analysts expect further declines.

At just under $US3 a pound, these are placing some miners in other countries under pressure, but when this translates to nearly $A6lb the WA producers, which are already among the more efficient miners in the world, are in a strong position.

Nickel has always been a volatile metal, with spikes and troughs producing industry nausea worse than that experienced in a Sydney-Hobart race.

In the late 1980s, the price reached a dazzling $US9lb (more than double that in current dollars), shooting up from less than $US2lb in a year or so.

RBC Mineral Securities, which has a significant interest in the Perth brokers Hartley Poynton, forecasts little improvement in current prices over the next two years, anticipating a figure of about $US3lb, after an average of $US3.92lb last year.

Most WA miners have cash costs well below this, especially when translated into Australian dollars (or, in the case of the slowly improving lateritic projects, an anticipation of such levels).

RBC, in its February report on commodities, says it expects nickel prices to remain under pressure as there are increasing supplies from Indonesia and Australia.

Weaker demand for stainless steel (in which nickel is used as an alloy) will also affect the supply-demand equation.

The recent settlement of a seven-month strike at Inco’s Falcon-bridge nickel smelter in Canada will increase the flow of metal onto a market in which there is already a surplus.

The Economist quoted analysts’ estimates that while nickel demand will grow by 3 per cent this year, output will rise by 10 per cent.

There was a shortage of 40,000 tonnes in the market last year, but a surplus of 25,000 tonnes could develop in the current 12 months.

Nickel demand is not expected to improve until this surplus is absorbed, according to RBC. Improved productivity at a number of Australian mines, particularly the WMC group, will contribute to a striking increase in production this year.

WMC has reduced its nickel mining costs by more than a third in the past three years, and it claims they are now the lowest in the world.

The weak Australian dollar is obviously an advantage, but even in US dollars, it holds its place.

Total costs for all of WMC’s nickel projects are less than $US2lb, giving it a comfortable margin on even today’s depressed prices (Mt Keith’s figure is slightly better that this average).

The Australian Bureau of Agriculture and Resource Economics (ABARE) forecasts an increase in Australian production of nearly 30 per cent, to 131,000 tonnes of primary nickel, in the current financial year.

Anticipating the steady fall in prices ABARE adds the comforting note that rising production and the weak Australian dollar will “more than offset the effect … of lower world prices.”

As a result, export earnings will increase by 25 per cent, to a record $2.3 billion – most of this earned in WA.

Matrix bid to secure future

MATRIX Metals directors have asked the company’s share-holders to approve Summo Minerals Corporation to buy 48 per cent of Matrix’s capital and inject $3.25 million through a loan facility.

The meeting, to consider the Summo transaction, will be held on April 9.

Matrix announced a maiden half year profit of $463,623, which was in line with budget figures used to prepare the prospectus forecast for the company’s July 11 listing.

Matrix managing director Andrew Chapman said the profit result was encouraging considering the operational setbacks the company had endured.

The company’s Mt Cuthbert operation was plagued by rainfall five times the December average and a strike by Queens-land Rail.

Mr Chapman said Summo’s involvement would secure Matrix’s future.

He said Summo would contribute a technical focus to the board that would enhance current and future operations.


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