06/09/2016 - 12:32

No boom, but better news for nickel

06/09/2016 - 12:32

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It might be wishful thinking, but there are encouraging signs pointing to an end to the crisis that has humbled Western Australia’s nickel mining industry.

No boom, but better news for nickel
Peter Harold says the world nickel market is reaching a balance between supply and demand.

It might be wishful thinking, but there are encouraging signs pointing to an end to the crisis that has humbled Western Australia’s nickel mining industry.

The newfound optimism can be found in recent comments by nickel veteran Peter Harold, and in research reports from a number of leading investment banks.

Mr Harold, chief executive of Panoramic Resources, reckons the worldwide market for the steel-hardening mineral is moving towards a balance between supply and demand, with the price potentially heading back towards $US6 a pound – a modest but healthy increase on the $US4.52/lb (and less) received over the past few years.

Significantly, he’s not alone in detecting a rising price trend.

Investment bank UBS is forecasting a price of $US5/lb for next year, before more significant rises in the following years – $US6/lb in 2018, $US7.50/lb in 2019 and $US8.80/lb in 2020.

Credit Suisse, another investment bank, is in agreement with UBS but also offers an explanation for the optimistic outlook – it’s a combination of several years of mine cutbacks and closures, steady demand, and the prospect of the Philippines disqualifying itself as a nickel exporter.

Events in the Philippines are identical to those that existed when Indonesia slashed its exports of nickel, especially to China, which likes to buy unprocessed ore for treatment in a process known as nickel pig iron (NPI).

Cheap and messy, NPI is a noxious industry both where the ore is mined and where it is processed, which means governments and their environmental agencies dislike it. Steel mills, however, use it as a low-cost substitute for the nickel metal and partly processed material exported from Western Australia.

The essential problem is that NPI has become an industry that offends almost everybody.

• It creates an environmental and social mess in the countries where it is mined as ore grading around 1 per cent nickel. The NPI is often shipped while still wet, which can cause shipping accidents (it can liquefy en route, causing ships to capsize when it moves on the hold).

• The government in China, where most NPI is sent, dislikes it because 99 per cent of the raw material is waste and has to be dumped.

• Traditional nickel miners, such as those in WA, hate NPI because it has flooded the market, pushing some of them out of business and jeopardising others.

The strongest reaction so far to NPI has come from the Indonesian government, which has forced the closure of a number of mines, demanding that unprocessed ore by upgraded before being exported to create local jobs. The net result of that action was the export of the NPI industry to the Philippines.

That’s why what’s happening in the Philippines is the key to the embryonic nickel revival, which has resulted in a significant fall in stockpiles of metal held in the warehouses of the London Metal Exchange and for an outbreak of interest in what has been a depressed WA industry.

In its latest analysis of the nickel industry, Credit Suisse reckons that, even without a stricter crackdown by the Philippines government, exports of NPI are set to fall.

“Eight nickel mines (in the Philippines) have been suspended by the government’s mine inspectors, five of which were active,” Credit Suisse said.

“Based on 2015 output, these closures might cost 41,000 tonnes of contained nickel in 2017.”

But more NPI mines, which are nothing more than simple earth-scraping operations that destroy vegetation and leave an environmental mess in a country with high levels of rainfall, seem likely to be forced out of business. This could remove 150,000 tonnes of nickel from the market each year.

The UBS nickel ‘model’ incorporates a forecast that last year’s worldwide surplus of 80,000t of nickel (supply totaling 2.017 million tonnes versus demand for 1.937mt) will flip this year to a deficit of 112,000t (supply 1.85mt versus demand for 1.962mt).

More inroads into stockpiles (inventory) measured at 519,000t last year will be made over the next two years, with price rises to follow, all the way to the $US8.90/t forecast for 2020.

Mr Harold’s latest comments on the nickel market to a mining news website included a warning that he was not expecting an imminent return to the boom conditions of 2007 and 2008.

But he added that the market did feel more like it did in the years approaching the last period of strong nickel prices, partly because there were no big new mines in the development stage and partly because of events in the Philippines.

Fingers crossed.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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