January’s issue of International Mining features a World Zinc Report and a World Prospects nickel special. Following several decades of underperformance, zinc is poised to outperform. Like zinc, nickel prices are high and the market is very robust. Nickel prices increased very strongly in the latter months of 2006 and are continuing to rise. Nickel has consistently traded above $13/lb since mid-August, recently touching highs of over $15.40/lb.
Jubilee Mines’ Chairman, Kerry Harmanis, recently stated, “We saw wide variations between prices over the year because of the volatility of the price and the ‘pipeline’ system for shipments dispatched to Inco. Overall we averaged $9.42/lb for financial year 2006. Our nickel production is unhedged, so our earnings remain highly sensitive to movements in the nickel price. The strong prices of the past six months, and our production performance, have certainly laid the foundations for another excellent financial performance for Jubilee in the first half of 2007.”
While the nickel market continues to be volatile, the long-term supply and demand fundamentals remain very healthy. The Chinese stainless steel industry has returned as buyers during the second half of the year as the strong growth of China’s economy continues. Chinese stainless steel production is forecast to increase by some 60% this year to over 5 Mt – this involves a lot of new nickel. A recent news report from China quoting the country’s transport director gives an insight into the structural transition occurring in the Chinese economy. This report indicated that China expects to spend $190 billion within the next four years to increase its rail network by 92,000 km (20%).
Delays and cost increases have been seen in nickel supply for some of the major new projects and no sight of any new supply of any significance on the horizon. This combination of very tight supply and strong demand is directly reflected in LME nickel stocks, which have fallen from around 35,000 t at the start of 2006 to recent levels of around 6,700 t – or less than two days’ of global consumption.
In a report published in November, Scotia Capital updated its zinc outlook, increasing the price forecast from $1.48/lb to $2.06/lb. Due to the higher price forecast it is anticipated that zinc inventories will reach critically low levels in the second quarter of 2007. The International Zinc and Lead Study Group expects global demand for refined zinc metal to increase by 2.6% to 11.35 Mt in 2007 (IM, January 2006, pp. 14-39).
