Falconbridge’s woes mean neckel prices could stay high

The suspension of production at the ferronickel-producing subsidiary of Falconbridge Ltd.(TSE) in the Dominican Republic, has raised the possibility of further nickel price hikes.

The move by Falconbridge to shut down the operation came as a result of a failure so far to resolve a quarrel between Falconbridge and the Dominican government over the latter’s imposition last December of a 25% export duty on shipments of ferronickel from the 85%- owned Falconbridge Dominicana C. por A. (Falcondo) operations.

Falconbridge Chairman William James told The Northern Miner he “wouldn’t even attempt to guess” when a settlement might be reached in the dispute, so that the mine might be reopened.

The main stumbling block to any such settlement, he said, is simply a matter of money. Falconbridge considers the export duty prohibitive, and will continue, James said, to seek a satisfactory solution through further negotiations with the government.

The Falcondo operation has produced ferronickel in the Carribean country since 1972, free of any kind of export duty in that time.

The mine and metallurgical complex produces close to 70,000,000 lb of nickel in ferronickel yearly, providing only about 5% of non- Communist world supply, but enough, analysts say, to significantly affect a nickel market already in a tight supply situation, and to help drive up the price.

In recent weeks nickel has soared to a high of over $10.80(US) a lb, against an average price last year of $2.19. (The effect of the price surge on the bottom line of Inco Ltd. for instance, is noted in another front- page story in this issue).

Although Falcondo did manage several shipments since the dispute began, there is now a nickel stockpile at the plant of around 20 million lb, James said, and no further shipments will be made until a settlement is reached.

But, says nickel analyst Ilmar Martens, even this relatively small amount held off an already-tight market will likely serve to drive up the nickel price another one or two dollars a lb.

At press time, the London price was $8.48 a lb.

By suspending production, Martens said, Falconbridge has probably played its last trump card in its quarrel with the Dominican government.

With about 1,200 Dominican nationals out of work as a result of the closure, he said, the government’s hand may be forced to a kind of ultimate solution — nationalization of the Falcondo operation.

“If there is a solution to this,” he said, “I think they (the Dominican government) would have had it already. It’s been nearly five months. The governmment may not want a settlement.”

Some help for Falconbridge, meantime, may be forthcoming from Washington.

According to reports, the Reagan administration is concerned that the tax on nickel exports from the Dominican Republic, because of its effect on nickel supply and price, could hurt the U.S. economy and in particular the steel industry, a major customer for Canadian nickel.

And, while Washington has said it would not intervene directly in the Falconbridge/Dominican Republic situation, Falconbridge’s chairman concedes the public expression of U.S. concern “won’t hurt our situation at all.”

The actual physical work involved in shutting down or re-starting the Falcondo operation is not a major problem, James said. It would for instance take about two weeks to get going again, should a settlement be reached.