Beginning of the year wasn't optimistic at all for producers of nickel, on the contrary - current trends indicate that they will face a very difficult year.
In early 2015, the price of nickel for three-month contract amounted to 15,000 US dollars per ton, and 414,900 tons of nickel were registered in the London Metal Exchange warehouses. Nowadays, the situation is reversed. LME yesterday's trading is closed at a price of $ 8,570 / t and 433 674 tons of nickel in official warehouses. In just one year the value of this metal decreased by 43%, while inventory increased by 4.5%. It is still an open question what amount of nickel is in secret warehouses. In conjunction with the global decline in the prices of all commodities, including oil, there is no reason for optimism. Price of $ 15,000 per tonne now looks like unattainable dream.
Excess of nickel production is still unsolvable problem?
According to information released by the INSG (International Nickel Study Group), 53.200 tons of nickel surplus was sold on the global market in the first ten months of last year. From January until the end of October 2015 there was 1,738,500 tons of primary nickel spent, what makes an increase of 1.4% compared to the same period a year earlier. In the same period, ,791,700 tons of primary nickel was produced - 1.6% less than in 2014.
The global market of nickel continued to generate surpluses, despite the lower and lower price of nickel, which recently touched the lowest value of the past twelve years. While awaiting a miraculous recovery in the industry of stainless steel, nickel producers suddenly found themselves in a ruthless struggle for survival.
The nickel mine Ambatovy in Madagascar has brought its owners, the Canadian company Sherritt International Corp. and the Japanese Sumitomo Corp., a loss of 1.7 billion US dollars. Nevertheless, Ambatovy has produced over 13,000 tons of refined nickel in the third quarter last year, the highest since the beginning of that project. The estimated production capacity of the mines is 60,000 tons per year.
Brazilian Vale is also struggling with the new project Goro HPAL in New Caledonia. This project also reached record production in the third quarter with 7,300 tons of nickel produced. Since the nominal production capacity amounts to 58,000 tons per year, a new record will come by itself.
As reported by Reuters, these and many other projects were started at a time when the price of nickel on the London Metal Exchange exceeded 50,000 US dollars per ton. There is too much money and time invested to be just written off by their owners, regardless of the fact that the global market currently does not want any more nickel.
Neither the companies that haven't invested in such large projects are ready to stop their own production. Their side of the story is also justified, why would they sacrificed for big ones, why would they have additional costs, problems with the social partners, when everybody else is doing the same?
Only the strongest will survive
Inventories of nickel are being accumulated daily. According to a survey conducted by Wood Mackenzie for Citi, its estimated that there is currently around 1.13 million tons of nickel on the global market, some on the registered warehouses, and some one the secret ones. This is the amount that can settle 219 days of global consumption. In other words, if all production of nickel would stop at the moment, the amount of inventories could settle the two-thirds of the usual annual needs of the global market.
The inevitable consequence is a further drop in prices. Citi expects that it will not take long for nickel prices to decrease to extremely unpleasant 8,000 US dollars per ton. In such circumstances new technology won't matter, nor low production costs, but it will only matter who has enough liquid assets to survive it.
It is for now the only light that could indicate the end of this dark tunnel for nickel.