trashed and down 6pc overnight, page-27

BELOW ARE SOME OPINIONS FROM MINING COMPANIES

Nickel upside still strong

Kate Haycck
Tuesday, 12 June 2007

MINERS and some analysts are tipping a continued bullish outlook for nickel despite its dramatic price fall on the London Metal Exchange last week.



Between Monday and Friday, the spot price of nickel tumbled from $US50,125 per tonne to $43,325/t on Friday, the metal's lowest price since February.

The price began sliding before the LME announced its new trading rules but it was the change in the way nickel longs can be traded on the exchange that prompted the dramatic sell-off in the metal and saw prices fall over 10% in two sessions.

The metal rebounded slightly in last night's trading on the LME and the spot price closed at $43,475/t, a gain of 0.35%.

Analysts said the trading session was quiet and cautious, with investors still watching the metal's price carefully.

One analyst from a major Australian bank said the market was still trying to find an appropriate level after the changes brought in by the LME, with current trading more associated with manoeuvring to reduce the impact of the new regulations, rather than any market fundamentals or massive changes to those fundamentals.

"This process will probably take a few trading sessions to work through," the bank added.

Nickel stockpiles are still at record lows on the LME at around 8880 tonnes, up from 8856t last week, a rise of 0.3%.

This level is still half that of the 52-week high of 16,980t, and many analysts are pointing out that this tightness as yet shows no sign of drastically easing.

"People are still talking in negative terms about the future, but in the near future there is still tightness," one trader told Dow Jones Newswires.

"There's been no panic in nickel. It had to move down, but I've not noticed a situation where everybody is selling."

Certainly, established and emerging nickel producers in Australia are keeping their eyes on the upside.

Mincor Resources director of exploration Jim Reeve told MiningNews.Net that the company saw the fundamentals for nickel as remaining very strong.

"We expect the demand for stainless steel to be quite strong. The demand for stainless steel, the demand for iron ore, is still going through the roof. That indicates [the current price falls] are probably only a temporary sort of lull," he said.

Reeve said the market's sell-off was due more to sentiment than any real technical impact.

"Stocks have risen a little bit, up to 8000-9000 tonnes, [but] that's a slight rise and it's still a very small total stock," he added.

"I think, realistically, not many people would expect the price of nickel to stay where it was two weeks ago, forever.

"The question is whether there's a soft landing to a new sustainable plateau at a higher price, which is what everyone is predicting, or worst case scenario, a huge collapse. And I don't think anyone is expecting a huge collapse while everything seems to still be booming in terms of the steel industry.

"The price is still very high, even at the current price, and we're looking at a break-even price way, way below the current price.

"I think nickel producers have never had it so good. I think the realistic longer term players don't expect it to stay where it is, but I think we might see it strengthen again," he said.

Reeve also added that from his perspective, predictions of the nickel price settling to around $30,000/t were realistic and "perfectly reasonable", with the caveat that predictions are inherently difficult to make.

"A lot depends on the buoyancy of global economies," he said.

"We're still positive about the price but maybe not at these absolutely stellar levels."

Julian Hanna, managing director of Western Areas, one of the newest nickel miners in Australia, was also keen to downplay the pessimism surrounding nickel this week.

"I think all the negative talk has been grossly overdone. There's certainly not enough nickel to keep the nickel smelters going and supply the stainless steel industry," he said.

Recent news of South Korean giant POSCO developing a no-nickel stainless steel and other companies turning to ferro-nickel substitutes has also put downward pressure on the nickel price, but Hanna said substitution was not a threat to nickel miners.

"There's always talk of substitution, there has been for years. But a lot of the product that's coming for example, the pig iron, the ferro-nickel, simply goes to supply shortfall that would otherwise be there and keeps stainless steel in business," he said.

"There's still only two or three days stockpile at the LME, and there are no new major sulphide developments coming on anywhere in the world," he added.

Hanna also pointed out that that a tightening in the control of smelters worldwide was also bullish for nickel – last month Credit Suisse estimated that the price of nickel could rise to $65,000/t, given that smelter capacity worldwide was forecast to increase only 4.6% compared to a 5% growth in demand.

Given these factors, Hanna was optimistic about the future of nickel both short and long term.

"All of our financial models use conservative pricing going forward, which is what banks will consider appropriate going forward, and some analysts. However, underlying that is our optimism for the future of nickel," he said.

"I think a lot of people are forgetting that the use of stainless steel is becoming a lot more widespread every month – stainless steel is here to stay, and nickel is rare, and stainless steel needs nickel."