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By Gary Park
Mining News Calgary correspondent 

Nickel shortage raises rationing specter

 

Last updated 5/9/2004 at Noon



China's hunger for nickel could force producers to develop a rationing system, an analyst told the Prospectors and Developers Association of Canada.

Raymond Goldie, with Salman Partners, said supplies are about 6 percent behind demand, pushing the spot price for nickel above US$6 a pound on the London Metal Exchange - the highest level in many years.

He said the next 10 years "should be exciting ones" for the nickel explorers and producers, but the "next two or three years could be scary as we are forced to deal with rationing." While reluctant to forecast the extent of rationing, he said only that producers might be forced to hold orders at current levels.

Other than rationing, he said manufacturers could develop new materials to serve as alternatives to nickel or prospectors can discover new nickel mines.

Driven by a recovering global economy and soaring demand in China, the rapid rise in nickel prices will result in higher costs for major users of stainless steel.

New production due in 2006

The only relief in sight is the promise of new sources coming on stream in the second half of 2006, when Inco - which currently meets one-fifth of world demand - is scheduled to start production, about eight years behind its original target, at its Voisey's Bay project in Labrador.

Voisey's Bay was once designed to yield 122,000 tonnes of nickel a year, or 14 percent of global supply, but a series of delays has seen the project scaled down to 50,000 tonnes a year.

Beyond Voisey's Bay, 63 junior miners in Canada have raised C$156 million over the past couple of years to explore for base metals, including nickel, according to statistics compiled by Noranda and Falconbridge.

Goldie said the world outlook was compounded by setbacks for Australian laterite nickel ventures, which were seen as a threat to saturate the market with cheap nickel and deterred companies from investing in new projects.

In the interim, Russian nickel stockpiles have evaporated and "we are still haunted by the effects," he said.

The investment shortfall over the last decade has left the supply-demand picture in worse shape than for any other metal, although there is a squeeze on copper and aluminum, Goldie said.

The economic boom in China has seen that country increase its consumption of nickel from 200,000 tonnes in 1990 to 4.5 million tonnes, although China's industrial growth has slowed this year, with export gains moderating and the outlook raising some questions about the growth prospects.

 

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