Nickel production costs falling

Nickel production costs have fallen for three consecutive years and are set to decline further in the period 1995-1997, says British research firm Brook Hunt & Associates.

In its publication Nickel Industry Cost Study (1992-2005), the firm says many companies are aiming for break-even costs below US$2.50 per lb. Management efforts to trim costs, and benefits flowing from recent heavy investment in parts of the industry, account for some of the improvements seen. Other factors, beyond management’s control, include favorable movements in exchange rates and higher co-product and byproduct prices (in particular for copper and cobalt).

The decline in 1995 costs (assuming there are no changes in the level of co-products and byproduct prices and relative exchange rates) reflects a sharp increase in output coupled with lower manning levels at a number of key operations. Also, benefits will continue to accrue from recent capital spending.

The company says average Western World direct costs of producing nickel in 1994 should fall below US$2 per lb., down about 20 cents from 1993. Total costs will be below US$3 per lb.

Last year, about one-quarter of output was produced at a cost in excess of the London Metal Exchange annual average price of US$2.40 per lb., although Japanese producers, with some of the highest costs, still managed to achieve positive cash margins as a result of inflated domestic nickel prices. In 1994, virtually all producers should generate positive direct cash margins. Overall, Brook Hunt expects Western World refined production will grow (given current prices) to about 670,000 tonnes in 1995 from 600,000 tonnes this year. The estimate is based on output only from those plants currently operating, and excludes the possible reactivation of some idled capacity in Japan and the U.S. amounting to a further 30,000 tonnes per year. Little change is anticipated in the flow of refined nickel and nickel-bearing material from the Commonwealth of Independent States next year. For more information, write Brook Hunt and Associates, Woburn House, 45 High Street, Addlestone, Surrey KT15 1TU, U.K.