METALS COMMENTARY — Nickel analysts glued to Baywatch

The potential impact of more than 122,000 tonnes per year of Voisey’s Bay nickel production by the turn of the century has nickel analysts focusing their attention on the small, isolated inlet on the Atlantic coast of Labrador that is poised to become a major mining centre.

AME Mineral Economics’ 1996 strategic study on the nickel industry, appropriately entitled Baywatch, says the discovery of this huge base metal resource has transformed the outlook for both the nickel industry and Inco.

“Voisey’s Bay will produce one third of all new nickel mine output in the next 10 years and will raise Inco’s share of Western World production to a market-dominating 38%,” the report states.

The expected impact of Voisey’s Bay is already raising doubts about the timing of new additions to production capacity. AME believes it is also making it much harder for new players to enter the industry. The study examines some of the likely casualties and also reviews some new, low-cost operations, such as Anaconda’s Murrin Murrin, RTZ-CRA’s Fortaleza and Minorco’s Loma del Niquel, which will add major greenfields production capacity through 1998-99.

The study also predicts future trends in nickel production, with the present high operating rates for both mines and smelters forecast to continue over the next three years. By 2000, AME predicts that Western World mine capacity will have risen 58% in five years, with fully one-quarter of this expansion coming from Voisey ‘s Bay. In the same period, smelting capacity is expected to rise 43%.

By the time Voisey’s Bay comes on-stream, AME expects the nickel market will have returned to a modest surplus, with Raglan and others in production. By 2005, Western World nickel output is expected to exceed 1 million tonnes per year.

The AME’s study also analyzes the outlook for nickel and notes that the strong performance of stainless steel will continue to underwrite global demand.

Currently, stainless steel consumes 64% of the world’s primary output. Strong growth has been noted in the developing Asian nations, and AME says more growth expected, despite some temporary oversupply with consequent price falls of about 20% for some products.

As for overall demand, the study notes that world nickel consumption last year reached a record 966,000 tonnes. For the past six years, annual growth in nickel consumption averaged 5.3%, well above the 3% average since 1960.

“Growth in world nickel usage over the past 30 years has outstripped all the major base metals, including aluminum and copper, and has been matched only by magnesium,” notes the Australian-based research organization.

AME ‘s price outlook calls for nickel to move up from the 1995 average of US$3.74 per lb. to US$3.85 per lb. this year, and to US$4.30 per lb. in 1997.

The peak year of the current cycle is projected to be 1998, when nickel prices should average $4.50 per lb. However, the study predicts that prices will weaken in 1999-2000 and beyond, “as Voisey’s Bay puts a new floor under nickel production costs, and market balances swing back to surplus.”