Depressed prices see producers make severe cutbacks

A week of extreme volatility in nickel prices has seen the industry's
fortunes divide as high cost operations start to buckle under the pressure of
low prices and their lower cost operations solider on.
Crashing LME nickel prices in mid-October saw a clutch of smaller
Canadian nickel producers with operations in the Sudbury basin announce
closures with days of each other. First Nickel suspended production at its
Lockerby Mine near Sudbury, Ontario citing low metal prices and the
challenging financial environment as reasons for the closure. The company
recently completed a feasibility study on an extension to the mine, which
would have yielded an estimated 420,000 mt/year of contained metal.
"We were always a high cost producer," First Nickel chief executive Bill
Andersen told Platts, "With nickel prices below $5/lb it becomes a no win
situation for us, breaking even doesn't work for us. We need to conserve cash.
I am a believer that commodities will out though and in Sudbury the economy
has elasticity. Six months ago Vale or Xstrata would have hired anyone who was
walking out of the door, now it looks as if there will be lots of unemployed
miners around."
Fellow Canadian miner FNX also suspended production at its Levack mine
after prices dropped. FNX chief executive David Constable told Platts that the
company had been looking at shutting nickel mining operations at Levack down
since nickel prices made losses over the summer. He said that he did not
expect operations to re-open any time soon.
World class nickel producers did not take long to follow their smaller
counterparts' lead. Brazilian mining major Vale announced Friday that it was
to slash production by 17,000 mt as part of a decision to stop the usage of
higher-cost thermal power generation, which in turn would result in a
reduction of nickel-in-matte output by 20%.
Australian miner Mincor Resources has cut nickel ore production for the
full year to between 16,000 mt and 19,000 mt, down from its original plan of
19,500 mt and 20,500 mt, following a review of its mining operations. The
Perth-based miner said the move will lower its cash costs to between A$5.40/lb
($3.68/lb) and A$5.70/lb payable nickel, from the current A$5.79/lb, what it
described as a necessary step in light of plummeting nickel prices.
A handful of nickel projects were eager to put forward a more positive
spin on the market, with representatives from European Nickel, Braemore
Resources and Mirabela speaking at Mining Journal's 20:20 Investor Series
Nickel Day in London Tuesday, all stating that their respective projects in
Turkey, Australia and Brazil, were all set to be profitable when they came on
stream. The speakers did agree however, that nearly half the world's current
nickel projects are non-economic at current price levels and that more cutback
announcements were likely.

PREMIUMS HOLD STEADY BUT PHYSICAL PICTURE BLEAK
The picture for physical nickel looks equally bleak. Traders told Platts
that spot business over the past week had become increasingly sparse with few
deals reported and those that had been sealed had been for negligible
tonnages.
"I have only done one deal and it was really small," a London-based
trader told Platts. "The premium was what you usually see for small lots of
cut cathode, $400/mt. Bullish as I would like to be I don't see any
fundamental change from last week."
The short covering rally at the beginning of the week, which saw nickel
push up over $3,000 in two days had little impact on physical movement,
according to a second UK-based trader. Three month LME nickel closed ring
trading at $12,100/mt Friday, a pick up from lows of under $10,000 on October
24, but still well below the cost of production for most producers.
"The physical market is still depressed," said the trader. "Stainless
mills remain closed and the only spot business we are seeing is sporadic
demand for truckloads of material from foundries."
The trader added that cheap briquettes, of grades which were
undeliverable to the LME, were still kicking around the European market and
could be picked up for as little as $50/mt.
"Most people are staying at the sidelines," said a Belgian-based trader.
"They are not in a rush to buy forwards. There is not enough liquidity in the
market for premiums to change much, but it really depends on a producer's
willingness to get rid of material."
Platts assessments for European physical nickel remain within range, with
only cursory movements across spreads. Traders said that producers remained
determined to keep premiums at their current levels on the few deals they
managed to seal, and that this stolid sentiment was likely to continue. Platts
saw full plate nickel premiums at $80-$150/mt plus LME cash on an in-warehouse
Rotterdam basis. Cut cathode premiums were seen at $300-$400/mt on the same
basis and briquettes held at $200-$300/mt.
--Michelle Madsen, michelle_madsen@platts.com-