Breaking News from The Globe and Mail Nickel rallies to 19-year...

Breaking News from The Globe and Mail

Nickel rallies to 19-year high as overseas labour strife bites
JOHN PARTRIDGE AND ANDY HOFFMAN


Tuesday, October 17, 2006

Nickel prices surged to a 19-year high Monday, propelled by a continuing supply shortage made worse by labour strife at key Canadian and French mine sites on the southwest Pacific island of New Caledonia.

But the head of the Brazilian company poised to buy Canadians nickel giant

Inco Ltd. suggested that Brazilian charm and know-how might give it an edge in solving the strikes and strife that have paralyzed the development of Inco's vital new Goro mine in New Caledonia, which is designed to boost world production by 4.5 per cent.

“Brazil is a kind of college for social development,” Roger Agnelli, president and chief executive officer of

Companhia Vale do Rio Doce (CVRD), told investors at a presentation. “We are in the Southern Hemisphere. It's easier for us to understand what's going on.”

CVRD knows how to “work with minorities and locals” and how to save time and money, he added.

CVRD is set to win Inco following a complex takeover battle involving several other bidders that began a year ago.


On Friday, it extended the deadline for shareholders to tender to its $19.4-billion bid by a week until Oct. 23, to give the company more time to win Investment Canada approval.


Goro is expected to produce about 60,000 tonnes a year of ferronickel — the alloy that puts the stainless in stainless steel.

That amount is the equivalent of 4.5 per cent of this year's anticipated global production of 1.35 million tonnes.

The trouble is, demand is already outstripping supply, with the appetite in 2006 expected to total 1.37 million tonnes, according to the International Nickel Study Group.

Combined with the latest labour strife in New Caledonia, in which two mines owned by France's Eramet SA are being blockaded, this supply squeeze sent prices soaring again Monday.

Contracts for nickel delivery in three months hit $31,950 (U.S.) a tonne on the London Metal Exchange at one point Monday, up $1,150 or 3.7 per cent, the highest price since 1987 and double the level of just a year ago. They finished the session at $31,900 a tonne.

Goro was scheduled to begin production next year. However, metals analyst Ray Goldie at Salman Partners in Toronto said Monday the start date "has already been delayed .ƒ|.ƒ|. to 2008" and unofficially "maybe to 2009 or longer."

Inco spokesman Steve Mitchell said the company plans to provide an updated schedule for the project by the end of this year.

Mr. Goldie said the reason Eramet has been targeted by the strikers is that its properties are more accessible than Inco's, which are under "pretty tight police protection" because of fire-bombings.

The strikers' main point of dispute with Inco, he said, is that the company has used some foreign workers, had parts of the Goro plant prefabricated in the Philippines, and is asking some employees to put in 60-hour weeks.

As well, noting that New Caledonia is a possession of France, Mr. Goldie suggested that a strain of European labour radicalism may also be a factor. "If you're a French unionist and you see [Inco] asking its workers to work 60-hour weeks, you see this as a threat to your way of life," he said. "I think they are trying to get the government to stop both the foreign workers and the 60-hour weeks."

There also are questions about whether another major new nickel operation, BHP Billiton Ltd.'s Ravensthorpe project in Australia, will come on stream next year as planned. It is expected to produce about 45,000 tonnes a year.

"One theme across all the metals at the moment is difficulties in delivering production from existing projects and difficulties in delivering new projects," said Adam Rowley at Macquarie Bank Ltd., citing costs, the availability of equipment and skilled labour, and strikes.

In fact, Mr. Rowley figures that until the supply side catches up, the only thing likely to soften nickel prices significantly before late 2008 or 2009 is "a serious downturn in global demand for nickel."

As things stand, he said in a note to clients Monday, demand still is booming around the world, there is no sign steel makers or other consumers have been overbuying and, as a result, "the market is stretched to the absolute limit."

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