Shipwreck floats nickel's boat
JOHN PARTRIDGE
Wednesday, January 24, 2007
While some other commodities appear headed for the rocks, a British shipwreck has helped buoy nickel to new highs.
The vital metal, a key ingredient of stainless steel, hit $38,300 (U.S.) a tonne on the London Metal Exchange yesterday amid uncertainty about the fate of more than 1,000 tonnes of the stuff that was on board the MSC Napoli. The container ship was deliberately run aground on Britain's south coast late last week to save it from sinking.
To put that 1,000-plus tonnes in context, it amounts to almost 20 per cent of the 5,052 tonnes of nickel currently stored in warehouses around the world that the LME tracks. The warehouse inventories add up to less than two days of global consumption, according to Bloomberg News.
Also pumping up prices was concern about a potential strike at the former Falconbridge Ltd. operations in Sudbury, Ont., which account for about 63,000 tonnes or 4 per cent of annual global nickel production.
Falconbridge's new owner, Xstrata PLC of Switzerland, is negotiating a new contract with more than 1,000 workers represented by the Canadian Auto Workers union, which has set a strike deadline of Feb. 1.
Demand for stainless steel, and hence for nickel, has been strong, especially from China and India, where growth has been explosive.
Nickel supply has been stretched thin, partly because of delays in bringing several massive new mines into production, in particular BHP Billiton Ltd.'s Ravensthorpe property in Australia and CVRD Inco Ltd.'s Goro project on the southwest Pacific island of New Caledonia.
"It's a classic supply-demand squeeze," said Gary Mead, senior analyst with Virtual Metals Consulting Ltd. in London.
This tight supply-demand balance has made nickel prices especially sensitive to developments that likely would have far less influence in different circumstances.
"The Xstrata Sudbury story is a bit like a pimple on an elephant's bottom," Mr. Mead said. "But it comes at a particularly tense time for nickel prices."
Yesterday marked the fifth trading session in a row that the metal has established a new record. Its $38,200-a-tonne closing price was up $900 from Monday, an increase of about 15 per cent from the start of 2007 and 157 per cent from this time last year. "Nickel is so high right now, nobody would have ever dreamed [it] in their wildest imagination," said Derek Webb, founder and chief investment officer of San Francisco hedge fund Webb Asset Management.
The fund, launched last June, has been buying nickel-related equities, betting the metal will continue to rise. Meanwhile, it has been shorting -- borrowing and selling -- copper equities in the belief that metal's price will continue to fall and the fund will be able to replace the shares at a lower price later, pocketing the difference as profit.
Even some investors who did not expect nickel to keep rising see no reason for it to stop any time soon.
"Nothing goes up forever, but it's hard to say when or what will trigger any kind of a correction," said Fraser Phillips, base metals analyst at RBC Dominion Securities in Toronto. "The market is fundamentally extremely tight."
At the bargaining table in Sudbury, there appeared to be little progress yesterday. Richard Pacquin, who chairs the CAW's Xstrata Nickel unit in Sudbury, said yesterday that the company has told the union it wants a deal by Saturday, but he appeared doubtful this target can be met. "We're still on the [contract] language issues on postings and vacations and until that is resolved, we don't see that as being possible," he said. "And we haven't even gotten to monetary issues yet."
Company spokesman Ian Hamilton said the company is "hopeful" an agreement can be reached, "but we are reaching a critical point in the discussions around language."
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SINKING SHIP, RISING PRICES
The wreck
The British cargo ship MSC Napoli was deliberately run aground close to the Devonshire resort of Sidmouth, about 265 kilometres southwest of London, after it was damaged during a storm Thursday. Its crew of 26 was rescued, but more than a hundred containers were knocked overboard. Officials said the cleanup could take a year.
The nickel factor
More than 1,000 tonnes of the metal were on board the ship -- an amount equal to about 20 per cent of the 5,052 tonnes stored in warehouses monitored by the London Metal Exchange. Prices have skyrocketed, closing at $38,200 a tonne yesterday, a 157-per-cent increase from this time last year.
The scavengers
Thousands of treasure hunters braved gale-force winds to pick through the ship's cargo, but police were powerless to stop them. Under British law, the public is entitled to gather wreckage from shipping disasters on the condition they declare it within 28 days. If they do not, they could be charged with theft.
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