Nickel may not possess the glamorous appeal of gold and silver but, in 1988, the base metal did just fine without it. Because of an unusual set of circumstances in which record consumption combined with low inventories, the price of nickel shot up to $10.84 (us) per lb from $4.24 last December. Naturally, the nickel producers gleefully raked in the money, but some were worrying that sustained high prices would feed a search for nickel substitutes. Nobody on the producer side wants that.
While the price of nickel had slid back to a more realistic $5.30 in late September, industry watchers say a return to the sub-$2 level of most of 1986 is highly unlikely. That should come as good news to major producers like Falconbridge Ltd. and Inco Ltd. Riding on the best nickel prices in years, Falconbridge was able recently to report its highest earnings ever for a single quarter. Inco’s earnings in the first half of 1988 were higher than earnings reported in any full year in the company’s history.
Nickel’s “Big Two” reaped this financial shot-in-the-arm even though forward selling prevented them from realizing London Metals Exchange prices. In the nickel industry, contracts are negotiated a month before the quarter in which they come into effect. As the non-communist world’s second-biggest nickel producer (next to Inco), Falconbridge contributed to the low inv entory levels which sparked this year’s price increase by halting ferronickel shipments from a huge operation in the Dominican Republic.
After the Dominican government imposed a 25% export duty on ferronickel shipments from the Caribbean island, Falconbridge put the operation on hold for about six weeks. “The absence of Falconbridge Dominicana, which supplies about 5% (or about 70 million lb of nickel annually) of non- communist demand for primary nickel, is one of the factors which affected the market,” says Marguerite Manshreck-Head, Falconbridge’s manager of market research.
Non-communist producer inventories fell by 34,000 tonnes to 70,000 tonnes by year-end in 1987. “This comes very close to the minimum level that the total industry can sustain,” she says. The low inventory situation was exacerbated by Finland- based Outokumpu Oy, which lost about 650 tonnes of production after a furnace breakdown. Inco inadvertently did its bit by losing the better part of a month’s production in Indonesia because of an earthquake that damaged the island’s canal system. And Western Mining Corp. of Australia was down 1,000 tonnes because of a labor dispute. Russian nickel shipments were also delayed during the first quarter.
But now that Falconbridge has settled its differences with the Dominican government and signed its Sudbury miners to a new 3-year contract, the non-communist world’s supply deficit is scheduled to be reduced this year to 13,000 tons from 42,000 tons in 1987. On the production side, a number of companies are in a position to increase their annual output slightly. As a result, Manshreck-Head expects non-communist world production to increase to 595,000 tons next year from 565,000 in 1988. With exports from socialist countries adding up to 89,000 tons in 1989 compared with 83,000 in 1988, total supply should also increase to 684,000 tons in 1989 from 649,000 tons this year, she predicts.
But in her 1989 production estimates, Manshreck-Head makes no adjustments for potential labor or technical problems that could reduce the total supply of nickel available to the West. However, the increased production this year will be more than offset by another year of buoyant demand. On average, about 55% of all nickel produced in the non-communist world goes into stainless steel products used in kitchens, beer kegs, building interiors and fast food restaurants. The metal is also used in super alloys and to make nickel plating for bumpers in the auto industry.
Taking into account that last year’s orders for stainless steel sheets in Japan alone rose by 10.1% in the home and office equipment sector, 21.3% in the construction industry and 2.4% in the automobile production sector, the high level of nickel consumption is easily explained, says Manshreck- Head. In 1987, strong demand from the conusumer and capital spending sectors pushed non-communist world stainless steel production to a record 9.1 million tonnes, which was 12.9% higher than in the previous year, according to Manshreck-Head.
On the assumption that growth in the gross national product for countries in the Organization for Economic Co-operation and Development (oecd) will drop to 2% in 1989 compared with 3 % this year, small reductions in consumption could occur in the major markets. Manshreck-Head says the new posco stainless steel plant in Korea will consume about 13,000 to 15,000 tons of nickel next year. “This new plant startup will partially offset the sort of reductions that will occur in other areas.”
The October, 1987, stock market crash had no effect on the price of nickel, and the devaluation of the U.S. dollar means nickel prices haven’t moved as much in U.S. dollar terms in other countries as they have in North America.
The strong demand for nickel is a welcome sign to the Nickel Development Institute, a Toronto-based organization charged with finding new applications for nickel alloys. The institute has more than 100 market development and research programs under way. In Europe, for example, the institute is lobbying to have nickel used in sulphur dioxide scrubbers of coal-fired power plants. Oil companies are another target. Corrosion-resistant nickel-containing materials are ideal for oil rig platforms. “The demand for nickel is tied in with consumption of materials which contain the metal,” explains Johannes Schade, president of the Institute. “We attempt to increase nickel consumption by hiring consultants in targeted areas and getting them to look at ways to promote the use of the base metal in those materials,” he says.
While Schade’s group might seem redundant in today’s nickel market (analysts expect prices to stay at around the $6 mark into the early winter at least), the 16 producers that cobbled the institute together in the midst of the last recession haven’t forgotten that dreary time. The work of the institute should buffer nickel tags when the inevitable decline comes.
Nickel may not possess the glamorous appeal of gold and silver but, in 1988, the base metal did just fine without it. Because of an unusual set of circumstances in which record consumption combined with low inventories, the price of nickel shot up to $10.84 (us) per lb from $4.24 last December. Naturally, the nickel producers gleefully raked in the money, but some were worrying that sustained high prices would feed a search for nickel substitutes. Nobody on the producer side wants that.
While the price of nickel had slid back to a more realistic $5.30 in late September, industry watchers say a return to the sub-$2 level of most of 1986 is highly unlikely. That should come as good news to major producers like Falconbridge Ltd. and Inco Ltd. Riding on the best nickel prices in years, Falconbridge was able recently to report its highest earnings ever for a single quarter. Inco’s earnings in the first half of 1988 were higher than earnings reported in any full year in the company’s history.
Nickel’s “Big Two” reaped this financial shot-in-the-arm even though forward selling prevented them from realizing London Metals Exchange prices. In the nickel industry, contracts are negotiated a month before the quarter in which they come into effect. As the non-communist world’s second-biggest nickel producer (next to Inco), Falconbridge contributed to the low inv entory levels which sparked this year’s price increase by halting ferronickel shipments from a huge operation in the Dominican Republic.
After the Dominican government imposed a 25% export duty on ferronickel shipments from the Caribbean island, Falconbridge put the operation on hold for about six weeks. “The absence of Falconbridge Dominicana, which supplies about 5% (or about 70 million lb of nickel annually) of non- communist demand for primary nickel, is one of the factors which affected the market,” says Marguerite Manshreck-Head, Falconbridge’s manager of market research.
Non-communist producer inventories fell by 34,000 tonnes to 70,000 tonnes by year-end in 1987. “This comes very close to the minimum level that the total industry can sustain,” she says. The low inventory situation was exacerbated by Finland- based Outokumpu Oy, which lost about 650 tonnes of production after a furnace breakdown. Inco inadvertently did its bit by losing the better part of a month’s production in Indonesia because of an earthquake that damaged the island’s canal system. And Western Mining Corp. of Australia was down 1,000 tonnes because of a labor dispute. Russian nickel shipments were also delayed during the first quarter.
But now that Falconbridge has settled its differences with the Dominican government and signed its Sudbury miners to a new 3-year contract, the non-communist world’s supply deficit is scheduled to be reduced this year to 13,000 tons from 42,000 tons in 1987. On the production side, a number of companies are in a position to increase their annual output slightly. As a result, Manshreck-Head expects non-communist world production to increase to 595,000 tons next year from 565,000 in 1988. With exports from socialist countries adding up to 89,000 tons in 1989 compared with 83,000 in 1988, total supply should also increase to 684,000 tons in 1989 from 649,000 tons this year, she predicts.
But in her 1989 production estimates, Manshreck-Head makes no adjustments for potential labor or technical problems that could reduce the total supply of nickel available to the West. However, the increased production this year will be more than offset by another year of buoyant demand. On average, about 55% of all nickel produced in the non-communist world goes into stainless steel products used in kitchens, beer kegs, building interiors and fast food restaurants. The metal is also used in super alloys and to make nickel plating for bumpers in the auto industry.
Taking into account that last year’s orders for stainless steel sheets in Japan alone rose by 10.1% in the home and office equipment sector, 21.3% in the construction industry and 2.4% in the automobile production sector, the high level of nickel consumption is easily explained, says Manshreck- Head. In 1987, strong demand from the conusumer and capital spending sectors pushed non-communist world stainless steel production to a record 9.1 million tonnes, which was 12.9% higher than in the previous year, according to Manshreck-Head.
On the assumption that growth in the gross national product for countries in the Organization for Economic Co-operation and Development (oecd) will drop to 2% in 1989 compared with 3 % this year, small reductions in consumption could occur in the major markets. Manshreck-Head says the new posco stainless steel plant in Korea will consume about 13,000 to 15,000 tons of nickel next year. “This new plant startup will partially offset the sort of reductions that will occur in other areas.”
The October, 1987, stock market crash had no effect on the price of nickel, and the devaluation of the U.S. dollar means nickel prices haven’t moved as much in U.S. dollar terms in other countries as they have in North America.
The strong demand for nickel is a welcome sign to the Nickel Development Institute, a Toronto-based organization charged with finding new applications for nickel alloys. The institute has more than 100 market development and research programs under way. In Europe, for example, the institute is lobbying to have nickel used in sulphur dioxide scrubbers of coal-fired power plants. Oil companies are another target. Corrosion-resistant nickel-containing materials are ideal for oil rig platforms. “The demand for nickel is tied in with consumption of materials which contain the metal,” explains Johannes Schade, president of the Institute. “We attempt to increase nickel consumption by hiring consultants in targeted areas and getting them to look at ways to promote the use of the base metal in those materials,” he says.
While Schade’s group might seem redundant in today’s nickel market (analysts expect prices to stay at around the $6 mark into the early winter at least), the 16 producers that cobbled the institute together in the midst of the last recession haven’t forgotten that dreary time. The work of the institute should buffer nickel tags when the inevitable decline comes.
Be the first to comment on "Annual Nickel Review (November 01, 1988)"