BHP Billiton may close Yabulu nickel plant -analysts

Thu Jan 22, 2009 7:12am GMT

SYDNEY, Jan 22 (Reuters) - BHP Billiton (BHP.AX: Quote, Profile,Research), the world's top miner, may suspend operations at its Yabulu nickel refinery indefinitely after completing a study on its future in the first half of 2009, analysts said on Thursday.

The high-cost refinery on Australia's northeast coast faces possible closure because of poor prices, which would take a further 25,000 tonnes of metal out of the global supply.

Yabulu's output is already being cut by about 50,000 tonnes a year following BHP's Wednesday announcement of the closure of its Ravensthorpe laterite nickel mine in Western Australia, which supplies Yabulu with nickel cobalt hydroxide for processing into nickel and cobalt.

The metal's price has plunged 44 percent since Sept. 1 as the global financial crisis has worsened, while LME stocks of nickel are around their highest levels since about mid-1995.

Yabulu operations could be suspended because the high-cost refinery does not fit BHP's preference for large long-life low cost operations that stay profitable through a commodity price cycle, Brendan Harris, a resources analyst at Macquarie Bank, said.

"We have assumed that BHP has come to the same conclusion as we have, that the degree of leverage that can be generated from high-cost nickel assets has certainly been reduced as a consequence of the overhang of Chinese nickel pig iron production that sits in the system," Harris said.

Chinese stainless steel makers have been increasing the use of nickel pig iron as an alternative to refined nickel, a move that has capped any upside in nickel's price.

A BHP spokeswoman said a decision on Yabulu's future would be made once a study on its viability had been completed.

On Wednesday, BHP said it would undertake the study during the first half of this year, after moving to shut part of the refinery that treats nickel cobalt hydroxide from the mine Australia.

Harris said Yabulu was a non-material asset for BHP that processes nickel laterite ore from mines it does not own in New Caledonia, Indonesia and the Philippines.

It was expanded to a capacity of 75,000 tonnes a year to handle output from Ravensthorpe which only started production a little over a year ago.

Goldman Sachs JBWere analysts, in a research report, also said Yabulu's future was under threat.

"We believe the closure of Ravensthorpe threatens the outlook for Yabulu as an ongoing asset," they said.

Morgan Stanley, in a research report, forecast Yabulu would return to pre-expansion production of 25,000 tonnes a year by ramping down immediately. (Reporting by Bruce Hextall; Editing by Clarence Fernandez)