article out of miningnews

Ferronickel threat to nickel highs: analysts

Tuesday, 13 February 2007
Paul Garvey

NICKEL'S current strong market conditions could be challenged by the emergence of low-grade ferronickel production out of the Philippines, according to analysts at Goldman Sachs JBWere.




In a recent research note, the analysts described the emergence of ferronickel, or nickeliferous pig-iron, over the past 15 months as "one of the most important developments in the nickel market".

"China has developed an innovative response to high nickel prices, by importing low-grade limonitic clay (c. 1.1% nickel), mainly from the Philippines, and converting it in idled steel furnaces to a low-grade ferronickel product (2-3% nickel) that can be used by at least some domestic stainless steel producers," GSJBW said.

"Stainless mills in other parts of Asia are also beginning to express an interest in this material."

The analysts estimated that China's production of nickel from the process had soared from around 3000 tonnes in 2005 to around 29,500t in 2006, with production growing.

In addition, the analysts said they believed neither ore availability nor infrastructure capacity would constrain production growth in the medium term.

The processing of the low-grade material is estimated to be very price-sensitive, with a break-even price of around $US11.30 per pound. For that reason, GSJBW said it envisaged a fairly rapid contraction in output once nickel dips below $US11.00/lb.

The spot price of nickel closed at $US38,410 per tonne or $17.46/lb overnight in trading on the London Metal Exchange.

GSJBW said it believed China's growing consumption of ferronickel would not be sufficient to push the tight nickel market into surplus this year, with the risk of that happening being higher in 2008 but not sufficient for GSJBW to revisit its price forecasts.

"Nevertheless, we believe that the fortunes of the fledgling low-grade ferronickel sector should be watched very closely in the coming months," GSJBW said.