Price plunge may trigger more Inco cuts

If the nickel market continues to deteriorate, further production cuts could be in store at Inco’s (TSE) operations, says Chairman Michael Sopko.

“We cannot carry the rest of the industry,” he told analysts at a recent meeting. “But we are prepared to take further action.”

In October, Inco announced plans to reduce nickel output to 380 million lb. in 1993 from 405 million lb. this year. Falconbridge followed suit, saying planned shutdowns at its operations in Sudbury, Ont., and Nikkelverk, Norway, will cut 1993 production by 10%.

Together, the two Canadian producers account for about 40% of the world’s nickel production.

Despite the announcements, the nickel price has continued its rapid decline, falling from US$3.03 per lb. at the end of September to around US$2.50 recently as inventories set new records.

Inco’s pretax consolidated break-even nickel price, including depreciation and depletion, will be US$3.30 in the second quarter of 1992, down from US$3.46 in the first half.

Russian supply remains the wild card, said Ivor Kirman, Inco’s European director of marketing. He estimates that Russian exports of secondary nickel (scrap, stainless steel ingots) have lessened demand for primary nickel by about 50 million lb. this year and have put a damper on nickel prices. Much of the excess metal is being smuggled out of Russia and other parts of the former Soviet Union, creating “confusion” in world nickel markets, he said.

“Without these back-door nickel exports, demand would have been much higher,” said Kirman.

But he added that Inco expects Russian exports to decrease next year and stainless steel production to post another record year at 11 million tonnes, up from an estimated 10.8 million tonnes in 1992.

“The back-door nickel is a question for the Russian authorities,” he said. “It could be curtailed at any time.”

Meanwhile, Inco expects productivity to be 20% higher in 1993 than in 1991 as a result of workforce reductions, improved ore grades and ongoing technological improvements.