The price of this strategic, silvery-white metal seems to be going as high as the nickel-containing ballistic missiles that defend North American air space. I hate to sound like a broken record, but the price of nickel keeps on breaking records!
The cash price on the London Metal Exchange pierced and finally
closed above the psychological $50,000 (US) a tonne/$22.68 a
pound level Monday, ending the day at $50,345/$22.88 per pound,
yet another record.
The cost of nickel has jumped six fold in the past five years
as global miners could not keep up with exploding world demand.
Since the start of the year the value of this industrially
vital metal has witnessed a spectacular 50 percent
increase.
How much higher will the price rocket is anyone's guess
although subsequent trading witnessed a slight, downward
correction.
Toronto-based Patricia Mohr, vice-president, economics,
industry and commodity market research at Scotiabank Group
says, "China's industrial activity picked up in January and
February of 2007 to 18.5 percent year-over-year - up from 14.7
percent in December.
"Nickel-containing stainless steel production in China
continues to barrel ahead in the face of virtually no stocks in
LME warehouses around the world."
Nickel super cycle
Scotiabank's commodity pricing index covers 32 commodities.
Nickel was the top performing commodity in 2006, climbing an
extraordinary 159% over the past year. Some pundits are
forecasting a "nickel super-cycle" of elevated prices.
Florida-based, Marine Fasteners Inc. is the largest fastener
supplier to the marine boat-building industry in North America.
Their stainless steel products require nickel for the metal's
unique corrosion resistance properties. There is no
substitute.
David Long, sales specialist says, "I would have never believed
a year ago that the price of nickel could hit such heights.
Eight out of the last 13 working days, the price of nickel has
set an all time high. The only people being more hurt by this
trend than the stainless steel consumers like us, are the
traders who predicted the market would be down by now, and bet
short."
Long publishes a very informative website devoted to nickel and
stainless steel news:
www.estainlesssteel.com
.
About 70 percent of global nickel production goes to making
stainless steel an alloy that is used in hundreds of thousands
of consumer and industrial products. These products range from
the basic kitchen sink and hospital surgical instruments to
liquefied natural gas tanker ships and many parts used in
automobile and aerospace assembly. Without stainless steel
products, the globe's industrial economy would grind to a halt.
And with proper care, stainless steel products have a useful
life expectancy of many decades and are 100 percent
recyclable.
Worldwide consumption of nickel is estimated to be about 3,700
tonnes per day during 2007. Last year, global nickel production
was about 1.35 million tonnes.
China's voracious demand
Of course, the main driver of escalating nickel prices and
demand is China's galloping race to urbanize and industrialize
its billion-plus population and economy, the size and scale of
which is unprecedented in human history.
China accounts for more than 60 percent of the global demand
for nickel and has become the largest producer of stainless
steel after Japan. The country imported 86,908 tonnes of nickel
in the first eleven months of 2006, a 7.6 percent increase from
the same period during the previous year.
On the production side, the nickel industry has been caught
flat-footed due to decades of over-supply and low prices. The
present shortages go back to business and political decisions
of the past 12 years in Canada and Australia.
In the mid-1990s, the discovery of the Voisey's Bay nickel
sulphide deposit in the Canadian province of Newfoundland and
Labrador and the building of a nickel laterite mine and
refinery - Murrin Murrin - close to the town of Leonora in
Western Australia both promised to flood the world with cheap
nickel. Prices at the time were hitting record lows of about
$1.76 in late 1998, ensuring that other miners stayed away from
any new nickel production.
Native land claims and provincial politics-some feel
Newfoundland basically blackmailed the company into uneconomic
concessions-held up the Voisey's Bay project which did not come
on stream until last year.
In addition, while Voisey's Bay is a significant nickel
deposit, initial comparisons to the enormous reserves in the
Sudbury Basin have never been met. The Basin and Norilsk,
located in Russia's Siberian district are considered the two
largest sources of nickel in the world. There is continued
debate in geological circles about which deposit is bigger and
if Russian reserve figures are accurate.
Nickel laterites very complex
The Murrin Murrin refinery used a Canadian refining innovation,
first used on Cuban nickel laterites in the 1960s, that entails
processing ore in a sulphuric acid leach bath using high
temperatures and pressures. This high-pressure, acid leaching
method is commonly known as HPAL.
Construction design flaws, poor materials, cost issues,
disgruntled investors and billion dollar law suites and losses
combined to prevent future expansion plans for this laterite
project. Current laterite ventures around the world have all
been designed to avoid the technical problems encountered at
Murrin Murrin.
With the unmet promises of these two projects, the unexpected
soaring demand by China and a healthy world economy, the
pressure on nickel prices really started in 2003.
Coincidentally, that was also the same year the Americans
invaded Iraq and along with the war in Afghanistan, they are
consuming billions of dollars worth of military hardware that
cannot be built without nickel alloys.
In addition, the overlooked enormous military expenditures, by
Russia, China, Japan and many countries in the Middle East must
be helping ensure that the price of this strategic metal
continues its skyrocketing climb to historic highs.
Nickel sulphides or laterites are complex minerals that
required long lead times for development, huge capital
investments and technological expertise to economically refine
this geologically uncommon metal. Few companies have that
knowledge.
Current delays and cost blow-outs at the more advanced CVRD
Inco's New Caledonia Goro laterite project (60,000 tpa) and BHP
Billiton's Australian Ravensthorpe laterite development (50,000
tpa) are helping keep nickel prices in the stratosphere. The
Goro project is also facing environmental issues and native
Kanak opposition. CVRD Inco is also bringing into production
two other nickel laterite projects in Brazil, Onca Puma and
Vermelho.
The company is currently conducting a comprehensive
re-evaluation of the Goro project and is working to further
minimize political, environmental, technological and
operational risks.
Historic Heart
Back in the Sudbury Basin, the historic heart of the global
nickel mining industry, exploration and mining activity is at
record levels. FNX Mining is a medium sized company working
entirely in the Basin. FNX Mining, CEO Terry McGibbons says,
"With the opening of the Levack mine this year our production
will grow quit dramatically. This growth will take place during
a period of incredibly high nickel prices. Our breakeven price
for nickel is about $3.50 a pound. Obviously the strong margins
we are currently experiencing will permit us to self-finance
most of our aggressive growth profile over the next two years
in the Sudbury Basin."
With the start of initial production at FNX Mining's third
facility, the Podolsky Mine, the company expects to be the
second largest producer of nickel in the Basin by 2009,
knocking Xstrada Nickel into third place. The recent discovery
at the Levack mine of the "Main Depths" nickel-copper deposit
indicates the excellent exploration potential that remains in
this 120-year old mining camp.
Most geological experts predict another hundred years of
production at Sudbury. Due to political security, an enormous
mining infrastructure already in place and a welcoming
community, the Sudbury Basin may be playing a more significant
role over the next few decades in helping a desperate global
economy meet its insatiable fix for nickel.
Stan Sudol is a Toronto-based communications consultant and policy analyst who writes extensively on mining issues [email protected] .
