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Nickel’s Floor Probably Isn’t $20,000, Macquarie’s Lennon Says

Nickel’s price floor probably isn’t $20,000 a metric ton because nickel pig iron producers in China are lowering their costs, Jim Lennon, global head of commodities research at Macquarie Bank Group Ltd. said. The following comments were from a phone interview on June 6.

On prices:

“The idea that $20,000 is some sort of floor on the price through which it cannot penetrate, I think it’s not correct. Sixty percent of the cost of producing nickel pig iron is the nickel ore itself. As the nickel price comes down, the price of the ore comes down as well. At today’s nickel prices, the breakeven may be $20,000. But if the nickel price goes to $20,000, then the breakeven for these facilities comes down to $18,000 to $19,000.”

On nickel pig iron production in China:

“Older furnaces that started up using low grade ores and offered coke are gradually being replaced by brand new ferronickel operations using electric arc furnaces, importing high-grade ores from the Philippines and Indonesia. The energy consumption is 30 to 50 percent lower than the older plants so the cash costs of production are coming down dramatically. Many of these newer plants will have a breakeven operating cost of about $15,000 per ton. The older plants that have been around for the last four or five years, their breakeven is more in the region of $20,000 to $22,000 a ton.”

On nickel pig iron production in 2011:

“We hear that there are over 200,000 tons of new furnaces coming on-stream over the next 12 months. In theory, the production could be as high as 300,000 tons. We’re still using conservatively 220,000 for the whole of this year.”

On global nickel supply:

“Half of the growth is coming from Chinese nickel pig-iron production.”

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