nickel update 7

MORE PRESSURE BUILDING ON PON.

Nickel hits record as Sudbury union rejects Xstrata offer
JOHN PARTRIDGE AND ANDY HOFFMAN

Nickel prices soared to an intraday high yesterday as speculators fixated on the rejection of a contract offer made by Anglo-Swiss mining giant Xstrata PLC to unionized workers at its operations in Sudbury, Ont., which account for more than 4 per cent of world production of the metal.

With supplies unusually tight and the more than 1,000 Sudbury workers poised to strike as early as Feb. 1, nickel for delivery in three months climbed as high as $38,950 (U.S.) a tonne -- $17.67 a pound -- on the London Metal Exchange (LME). It slipped back to close at $38,090, down $60 from Thursday. Nickel is up more than 17 per cent from the beginning of January and 157 per cent from this time last year.

The Sudbury mining, milling and smelting operations were a key part of Falconbridge Ltd., which Xstrata took over last year and renamed Xstrata Nickel. The workers are represented by Local 598 of the Canadian Auto Workers union.

"There's obviously a lot of speculative fervour ahead of the expiry of the Sudbury labour contract with Xstrata," Jim Lennon, a London-based metals analyst with Macquarie Bank Ltd., said when reached at his office. "There is virtually no inventory left on the [LME] and there is a lot of short covering ahead of a potential strike at an operation that accounts for 4 per cent of world production. So we're in an extreme panic situation."
In other words, short sellers who have borrowed and sold the metal, betting that its price would fall, have been forced to wade into the market and replace it now in an effort to limit their losses.

"Clearly, if there's going to be a prolonged strike at Sudbury, then that will have major ramifications for the market and push the prices even higher," Mr. Lennon said.

Nickel's main use is as a key ingredient of stainless steel. Explosive economic growth, especially in China, has created unparalleled demand for nickel. However, supplies have been stretched thin, partly by delays in bringing new mines into production, in particular BHP Billiton Ltd.'s Ravensthorpe property in Australia and CVRD Inco Ltd.'s Goro project on the southwest Pacific island of New Caledonia.

Although the current labour contract in Sudbury does not expire until Jan. 31, Xstrata has been seeking to reach a new deal with its unionized workers by today because, according to the CAW, it would take approximately three days to shut down the operations ahead of a work stoppage.

Hemi Mitic, assistant to CAW president Buzz Hargrove, and the union's chief negotiator in the contract talks, said yesterday that the company had tabled a "global offer" but that it was rejected because, although it dealt with wages and benefits, it failed to tackle contract language issues raised by the CAW. "If they think they can simply give us a monetary settlement, that's not going to happen," Mr. Mitic said, adding that in any event the union is not satisfied with the monetary offer, although he would not provide any details.

Mr. Mitic described the talks as "stalled more than anything else," but said the union plans to continue bargaining through to the strike deadline at midnight Wednesday.

Xstrata Nickel spokesman Ian Hamilton said the company is "disappointed" the union had rejected its offer.