Nickel price plunges

Nickel prices have been on a downward slide since the summer and are likely to continue doing so in the short term, says an analyst with Andras Research Capital.

Victor Lazarovici said nickel, whose spot price on the London Metal Exchange (LME) stood at US$2.78 per lb. recently, is likely to keep falling until it finds the needed support.

A month ago, the spot price stood at about $4.20; six months ago, the price was around $5.60. For 1989, nickel in London averaged $6.05; for 1988, $6.27; and for 1987, $2.21.

Measures the nickel producers might consider to help shore up the price, Lazarovici said, include curtailing or cutting back on production, and building up inventories (for the short term).

The world’s largest nickel producer, Inco (TSE), has already announced a small reduction of its planned nickel production for 1990, from 420 million lb . to 400 million lb.

The company says the reduction will be achieved primarily by the elimination of overtime at Inco’s Ontario and Manitoba divisions, and at its refinery at Clydach, Wales.

Bob Purcell of Inco’s public relations department said overtime in 1989 by the company’s Ontario and Manitoba workers totalled 871,000 hours and was worth almost $28 million in extra pay.

“I don’t think anyone among the nickel producers is losing money at these prices,” Lazarovici said of the current price levels. Inco’s cash production cost for the first nine months of 1989 stood just below $2. Because the cost was trending higher throughout 1989, Inco’s cash cost for that year is expected to be slightly above $2.

The cash cost of Canada’s other major nickel producer, Falconbridge Ltd., is said to be higher than Inco’s. Falconbridge no longer trades as a public company, which was taken over last year by Noranda and Trelleborg. Falconbridge has made no announcement regarding a production cutback.

Lazarovici said a sustained price below $2.50 would likely be required to bring about any major production changes.

Inco’s production cutback this year will result in a 7% decrease in output compared with 1989. The company was already anticipating lower total production this year; the Thompson open pit in Manitoba is near exhaustion and will cease being mined this year. The company has also been experiencing declining nickel grades at its Thompson operations.

So great was the demand for nickel in 1989 that Inco purchased about 80 million lb. of the metal from the LME to fulfill its contract obligations with customers.

The price of Inco stock has also been dropping; the company was recently trading in the $27 per share range.

Carlos Leitao, an economist with the Royal Bank of Canada, says the speed with which nickel prices have fallen has been a surprise.

“This is largely attributable to a glut of stainless steel scrap which came on to the market late last year and which ultimately resulted in a large increase in nickel inventories at the LME,” he said. “Nickel prices are therefore likely to remain under strong downward pressure until overall inventories return to more normal levels.”