UPDATE - Inco says nickel supply strained until 2006
Friday December 13, 2:03 pm ET
(Figures in US dollars unless noted)
TORONTO, Dec 13 (Reuters) - Inco Ltd. (Toronto:N.TO - News), the world's second largest nickel producer, said on Friday the current nickel cycle will likely need significantly higher nickel prices to force demand into line with supply.
Peter Goudie, Inco's vice-president for marketing told analysts in Toronto that, with most nickel producers operating at capacity, very little shutdown capacity, and the last round of current expansions coming to an end, there will be limited amount of additional supply before 2006 to meet demand growth.
Beyond 2006, he added, there will probably be adequate capacity at or slightly above the long-term nickel price of $3 a pound used by Inco for its planning purposes.
"The industry, and financiers, should not repeat the mistakes of the past by building projects that need higher nickel prices to justify their development," Goudie told the Mineral Resource Analyst Group.
He said potentially major projects like Ravensthorpe in Western Australia, and Koniambo, in the French overseas territory of New Caledonia, are not scheduled to begin in time to have any impact on nickel supply in 2005.
Inco's own Goro nickel project, also in New Caledonia, has been delayed to about 2005 while the company reviews rising capital costs. It also plans to bring its Voisey's Bay nickel mine in eastern Canada into production in 2006.
The two projects are considered to be some of the best undeveloped nickel deposits in the world.
Goudie said much of the demand for nickel is coming from the stainless steel market, particularly in Asia, including Japan.
Demand in this sector is expected to stay strong over the next decade due to the fast pace of change in China, he added.
Goudie said stainless steel demand in Asia now represents more than one-third of all stainless demand -- larger than any other region including Europe.
He said stainless demand had grown in China by 26 percent since 1990 due to double-digit growth in industrial output.
But Goudie said his immediate and biggest concern was the availability of nickel supply over the next few years.
He said Inco projected total additional nickel available between 2003 and 2005 will total about 294,000 tonnes.
"This may seem large, but with possible nickel demand growth of say 6.5 percent in 2003, it will only allow demand growth of 2.1 percent in 2004 and 2005 before all available nickel is consumed," he said.
In 1988 and 1989 nickel prices rose to more than $6 a pound to slow demand growth to similar levels. Goudie added that if demand growth in 2003 exceeds 8.5 percent, a lack of supply could hold demand in the 2004-2005 period to zero growth.
"Prices would have to rise even further to cap demand growth and keep it in line with supply," he said.
Goudie said nickel demand in 2003 should be quite robust, regardless of an the degree of economic recovery in the West.
Reasons for this include Chinese demand, low inventories, and more than 3 million tonnes of stainless capacity commissioned in 2002 and next year.
Goudie said inventory levels at the end of the third quarter represented 4.7 weeks of demand, rising to 7.5 weeks when Russia's production of 60,000 tonnes is added. "It's still very low for this point in the nickel cycle," he said.
Goudie said nickel fundamentals in the current cycle will be "quite strong," with few price forecasts above $3.60 a pound of nickel over the next few years. |
