NICKEL-Major market developments in January

Wed Feb 11, 2009 1:07pm GMT

LONDON, Feb 11 (Reuters) - Global nickel prices will weaken further unless more output cuts are made to offset falling demand and prevent the market from recording a supply surplus for the third consecutive year, analysts say.

"Prices will remain under pressure. Stocks are still rising, and it's obvious demand, especially from the stainless industry, is dropping sharply," independent consultant Angus MacMillan said.

More production cutbacks and closures are expected.

"I see more closures coming. The price has got to go lower still. There's so much nickel in the system even with the cuts, there's so little demand right now," an analyst said.

He said the October low of $8,850 was probably a good downside target.

At 1238 GMT the London Metal Exchange (LME) three-months nickel price MNI3 was indicated at $10,360/560 a tonne.

In early January it reached a two-month high of $13,550 ahead of the annual re-jigging of major commodity indices. But the market failed to consolidate these gains once attention returned to the ailing world economy and poor demand prospects.

Inventories of nickel in LME warehouses are at their highest in almost 14 years.

Vanessa Davidson of industry consultants CRU Group made the point that stocks were rising from already high levels, after the market recorded substantial surpluses in the past two years.

"Chances are that the market will move into deficit as the year wears on with the supply cuts, but that won't be enough to give a deficit for the year as a whole," she said.

Below are some of the more significant recent developments in production, stocks and prices that may influence the direction of the market in 2009.

PRODUCTION:

Jan 29 - Vale Inco (VALE5.SA: Quote, Profile, Research) will restart concentrate shipments from its Voisey's Bay nickel mine in eastern Canada after reaching an agreement with the province of Newfoundland and Labrador over a proposed nickel processing plant. Vale had agreed to start holding back shipments of concentrate to smelters in central Canada after the two sides missed a deadline to come up with a construction schedule for a low-cost hydro-metallic processing plant in the province.

Jan 29 - Indonesia's PT Aneka Tambang (ANTM.JK: Quote, Profile,Research) said it plans $265.4 million in capital expenditures, up three-fold on 2008, to position itself for an eventual recovery in commodity prices. The company also said it expected ferro-nickel output, its biggest contributor to revenue, to fall 30 percent to 12,000 tonnes this year.

Jan 22 - China produced 132,641 tonnes of refined nickel in 2008, up 11.4 percent in 2008 from a year earlier, according to figures released by the National Bureau of Statistics.

Jan 22 - BHP Billiton (BLT.L: Quote, Profile, Research) (BHP.AX: Quote,Profile, Research) may suspend operations at its Yabulu nickel refinery indefinitely after completing a study on its future in the first half of 2009, analysts said. The plant's output is already being cut by about 50,000 tonnes a year following the company's 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.

Jan 21 - BHP Billiton said it will suspend its Ravensthorpe nickel mine in Australia due to poor prospects for profitability. It also said it would reduce mining activity at its Mount Keith project in Australia but would maintain nickel concentrate output.

Jan 20 - Anglo American Plc (AAL.L: Quote, Profile, Research) (AGLJ.J:Quote, Profile, Research) has temporarily halted production at its biggest nickel mine in Venezuela. Output at the operation has been stopped partly due to high transport costs at the mine.

Jan 20 - Eramet (ERMT.PA: Quote, Profile, Research) said it has won an exploration licence for two nickel deposits in New Caledonia that could potentially double its output of the metal. The exploration phase will take up to nine years, followed by a three-year feasibility study for local processing of the ore.

Jan 5 - Jinchuan Group Ltd, China's top nickel producer, said it plans to increase nickel output this year to 125,000 tonnes from 104,600 tonnes in 2008.

PRICES

Nickel prices ended January at $11,300 a tonne, down from $11,700 a month earlier. But early last month they shot up to a two-month high of $13,550 ahead of the annual re-jigging of major commodity indices.

Nickel failed to hold onto its early gains once the re-balancing started though and market focus returned to the weak global economy.

Prices appear to be stuck in a $10,000-$12,000 trading range for now, but if anything a break on the downside looks the more likely as stocks build and demand worries persist.

In January, the twice-yearly Reuters base metals price poll [MET/POLL] put the median average for the LME cash nickel price MNI0 at $11,023 a tonne.

STOCKS

LME nickel stocks continued to climb in January, ending the month at 84,084 tonnes compared with 78,822 tonnes a month earlier. At the end of January, inventories amounted to more than 23 days of demand.

Poor demand has ensured that they continued to rise in early February and are now around their highest since mid-1995.