There is an old public relations saying that if you repeat a wrong often enough it becomes the truth. That seems to be the case regarding the "record price of nickel."
Contrary to what you may have been reading in the Toronto
media, nickel has not reached its historical high.
That occurred in late March 1988 when the price skyrocketed
to a record setting $10.84 lb.(US) or $23,900 per ton, a level
yet to be reached during this current commodity boom. With
inflation factored in, that peak would be worth $16.78 lb. and
$36,988 in current prices.
The background to this rapid price spike went back to the
massive retrenchment of the industry in the late 1970s and
early 1980s.  In 1980, there were about 40 nickel
producers in 26 countries. Demand for nickel was still falling
regardless of the large layoffs in 1977 and a long strike in
1978-79 at Inco's Sudbury operations. The entire nickel sector
contracted, closing down uncompetitive operations due to the
low prices - $1.60 lb. to $3.20 lb. range.
In January 1987 the London Metal Exchange price averaged at
$1.60 lb. But during that year, the western world's stainless
steel demand surged by 15 percent and the industry was caught
off guard.
The record spike in price was the result of a "perfect
storm" of politics, strikes, technical problems and industry
undercapacity. There were shipment delays from the then Soviet
Union's Siberian nickel mines at Norilsk. Production problems
plagued Inco's Indonesian operations, Colombia's ferro-nickel
facilities and a smelter in Finland owned by Outokumpu.
Striking Australian miners at Western Mining's Kambalda
operations and labour issues in Greece all contributed to a
tightening nickel supply.
The straw that finally broke the camel's back was a dispute
between Falconbridge Ltd. and the Dominican Republic over an
export tax on ferronickel shipments.
Although the Dominican Republic only supplied five percent
of western nickel demand, it was enough to cause the price to
hit its historical high. The peak price of $10.84 didn't last
long, but it did establish a benchmark that has yet to be
broken.
For the remainder of 1988, the price of nickel averaged
$6.51 lb. It would take all of 1988 and 1989 for the nickel
industry to increase production. By 1990, supply and demand
fundamentals came back into balance and the price went into a
long, slow decline hitting an all-time record low, if you
factor in inflation, of $1.76 lb. in October and December 1998,
on the London Metal Exchange.
The low price was the result of an imploding Russian economy
that was dumping nickel on western markets, the Asian currency
crisis that was annihilating economic growth and the threat of
lower-cost laterite mine production from Australia that would
use a new technology called HPAL.
The one final nickel price explosion that should be
mentioned occurred during the nickel boom of the late 1960s.
The western economies were expanding, the Vietnam War was at
its peak and nickel supply could not keep up with demand.
Hostile labour relations in the Sudbury Basin pushed the Inco
miners to strike on July 10, 1969. Falconbridge workers joined
them in the third week of August and the combination shut down
half the free world's supply of nickel for about four months.
The industrial economies of Britain and the United States,
both of which imported most of their nickel from Canada,
suffered greatly.
The London Times headlines screamed: The Nickel Crisis. It
was the most severe materials shortages Britain had experienced
since the Second World War.
In the U.S., nickel stockpiles had to be guarded by armed
police to prevent theft. Prices exploded, peaking at $7.70 per
lb. on the London Metal Exchange and going as high as $9 per
lb. on the black market. If you factor in inflation, those
prices range from $43.00 per lb. to $50 per lb. in 2006.
Last fall, the respected New York stockbroking firm Goldman
Sachs, suggested that nickel has become the metallic equivalent
of oil.
 Notwithstanding the influence of hedge funds and
commodity traders, the fundamental fact is that there is not
enough supply to meet growing global demand, especially China's
voracious appetite. In addition, high laterite production costs
and large nickel deposits in politically less developed and
less stable countries will demand a higher price for the metal
to compensate for increased risks.
Current global worries about Sudbury's labour negotiations and spring floods that are holding up Russian nickel exports are putting additional upward pressures on the current price. We will soon probably see the March 1988 record price finally broken and the Toronto media will finally get it right.
Stan Sudol is a Toronto-based communications consultant who writes extensively on mining issues.[email protected]
