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Brazil CVRD: Tight Nickel Market Could See Pressure From India5-31-07 4:00 PM EDT
SAO PAULO -(Dow Jones)- The tight nickel market could see pressures increase further in the years ahead if India's burgeoning economy increases its use of the key stainless steelmaking ingredient, the chief financial officer of Brazilian miner Companhia Vale do Rio Doce (RIO), or CVRD, said Thursday.

"Pressure from India is not yet included in the price," Fabio Barbosa said. " Demand could be even more intense if India effectively grows its use of the metal."

Barbosa made the comments during a presentation to Sao Paulo's Association of Analysts and Capital Markets Investment Professionals, or Apimec-SP.

He said that demand has continued to rise as China, India and other developing markets increase their production of stainless steel, with few new nickel projects coming on line to ease the shortage.

"The gap between supply and demand is growing rapidly," Barbosa said.

The tight market has pushed nickel prices to historically high levels, with the three-month contract price on the London Metals Exchange peaking at a record $51,800 a metric ton on May 9.

CVRD forecasts that nickel prices will remain elevated in a range between $40, 000 and $45,000 a metric ton in 2008-09, unless the latent price pressures from India emerge, Barbosa said.

The imbalance between supply and demand should be maintained for several years, given that the current nickel projects under development won't be in operation until between 2009 and 2011, Barbosa said.

"Our expectations are very positive for the next few years - and decades," he said.

CVRD expects to produce 287,000 metric tons of nickel in 2007, up from pro- forma output of 251,000 tons in 2006. In October, the company completed its $ 17.6 billion purchase of Canadian nickel miner Inco.

Barbosa said the company so far is on target for a December 2008 completion of its much-troubled Goro project in the French territory of New Caledonia.

The Goro project is one of the world's largest nickel mines currently under development, with expected production capacity of 60,000 metric tons a year. Goro is seen as a key swing factor in the critically tight nickel market, as well as a key foothold for CVRD in its expansion in the Asia-Pacific region.

However, the mine has been beset with problems that have delayed its development amid rising costs. CVRD's final budget of $3.2 billion is up from initial expectations for development costs of $1.5 billion.

Commercial-scale production is expected to start in early 2009 and ramp up over an 18-month period to full capacity, Barbosa said.

"Our vision for this project is very positive because future expansion could come at much lower cost," he said, noting that development of Goro to its full potential could yield immense gains for the company. Goro has 120 million metric tons of nickel reserves.

CVRD's Onca Puma nickel project in Brazil's Para state is also scheduled for completion in the fourth quarter of 2008, Barbosa said. The $1.4 billion project is expected to start production in 2009, with output of 58,000 metric tons of nickel annually when it reaches full production.

According to Barbosa, CVRD plans to be the world's largest producer of nickel at a production of 500,000 metric tons a year by 2012.

Barbosa said that the company was unfazed by a recent surge in stainless steel alternatives, such as nickel-chromium pig iron or Posco's (PKX) nickel-less stainless steel. There is also increased use of stainless steel products relying on higher contents of manganese or molybdenum, the executive added.

"Demand is not waiting on supply," Barbosa said. "These products are helping our clients compensate for the absolute shortage of the raw material."

However, the use of 72% to 75% nickel in stainless steel remains the standard, he said.

"It doesn't threaten the structure of nickel use in stainless steel," Barbosa said. "What we are focused on is the promise to our clients to expand our production of nickel."

-By Jeff Fick, Dow Jones Newswires; 55-11-3145-1481; [email protected]


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05-31-071600ET
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