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Nickel Outlook Strong, Projects Risky, Macquarie Says

The outlook for the nickel market is “strong” on the back of growing stainless steel consumption, currently limited supply and the risk attached to new projects, Macquarie Group Ltd. said.

Nickel prices will range from $20,000 to $25,000 a metric ton “for the next 18 months” before a number of new projects start production, Macquarie Securities Research Director Jim Lennon said at the New Caledonia Nickel Conference in Noumea.

While nickel, the second-strongest performer on the London Metal Exchange this year, may come under pressure from new supplies, projects using high pressure acid leaching technology, such as the shuttered Ravensthorpe project in Australia formerly owned by BHP Billiton Ltd., have proven to be “risky” and prone to “failure,” said Lennon.

Futures for nickel, a metal mainly used in stainless steel production, rose 1.2 percent to $22,949 a ton at 10.42 a.m. Singapore time. Prices have risen 24 percent since the start of the year.

While ore is typically smelted to remove impurities before further refining, leaching involves dissolving the material in acid and filtering the liquid to raise metal content. The technology is subject to cost overruns and is “sometimes complex to bring to meaningful industrial scale,” Deutsche Bank AG analyst Erik Danemar said in May.

2011 Supply

The nickel market is likely to have a supply deficit of 73,000 tons this year, moving to a “balanced” situation for 2011, Lennon said.

Among new projects, Vale SA’s $4.3 billion Goro operation in New Caledonia, which has just commenced production, uses technology similar to that used by BHP in Ravensthorpe before it shut the mine in January 2009, eight months after commissioning, as nickel prices plunged. BHP sold the mine to First Quantum Minerals Ltd. last year. The Canadian miner said last month that first production at the restarted mine will be in the second half of 2011.

Operations using leaching technology “account for half the projected increase in nickel supply and if they fail - or are an economic failure - the supply-demand outlook would be radically altered,” said Alan Heap, managing director of global commodity analysis at Citigroup Inc., in a Nov. 8 report.

The nickel market is expected to return to a “small supply surplus in 2011 as one-off production issues are resolved and key projects come on line,” UBS AG analyst Tom Price, who’s forecasting nickel futures to average $21,312 a ton next year, said in an Oct. 18 report. Last year nickel futures averaged $21,628 a ton.

Nickel prices last year surged by 58 percent. Stainless steel usage accounts for two-thirds of nickel demand. This year global output of stainless steel will increase to at least 30 million metric tons from 24 million tons last year, the Brussels, Belgium-based Bureau of International Recycling said last month.

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