Nickel prices on LME really take off

The research department of a Toronto securities firm calls nickel the “star of 1987” among base metals. Judging by recent events, nickel could be in for another stellar performance this year.

The metal, which sold for a spot high of $4.24(US) per lb in December, recently topped the $5 mark on the London Metal Exchange (lme), with bids (unanswered) running as high as $6.80. Not bad for a base metal which in December, 1986, was selling for $1.60.

A tight market for nickel in which demand continues to be strong is the main reason given for the steep rise in price. So concerned were lme officials about the price run-up that a morning trading session, or “ring,” was cancelled.

Nickel on the lme is thinly traded and volatility in the market’s pricing is to be expected, Peter McBride, director of public affairs for Falconbridge Ltd., told The Northern Miner.

McBride said it is “unbelievable” such a wide gap in price could exist between the morning spot price on the lme and the lower 3-month price. (At the time of the interview, the difference in price was $1.36.)

Falconbridge and other major producers such as Inco Ltd. deal with their customers directly, rather than trade on the lme; McBride said the lme price of the metal would, however, be a consideration in Falconbridge’s selling price. Export tax

Having an impact on the tight market is the dispute in the Dominican Republic between Falconbridge and the government of that country which has seen metals shipments halted. The dispute centres around an export tax slapped on the Canadian company’s ferronickel production.

Falconbridge continues to produce ferronickel (nickel combined with iron) at its Dominican Republic facilities. McBride said the Dominican Republic mine accounts for about 5% of the non- Communist world’s annual nickel output.

Securities dealer Nesbitt Thomson Deacon, in a research report, recalls that earlier this decade high costs, low metal prices and ballooning inventories brought about closures of nickel mines and smelters.

By early 1984, demand had caught up to and exceeded supply and inventories of the metal began to fall. In 1986, when it looked as if nickel producers were about to benefit, Nesbitt says the Soviets, probably needing hard currency after the drop in oil prices that year, upset things with an influx of the metal to western markets. Early this decade, nickel prices fell as inventories increased. Demand also tumbled. Then, from about 1982 to late 1985, demand picked up but supply kept pace, and prices traded in a narrow range. In 1987, inventories dropped to their lowest levels in a decade.

Nesbitt says Inco and Falconbridge control about 42% of the non-Communist world nickel production.

Nickel, in part because of its resistance to corrosion and high strength over a wide temperature range, has many uses, the main one being in stainless steels.The metal is a favorite alloying agent.