Norilsk Sees Industry Cuts After Profit Slides to 6-Year Low

  • Nickel and PGM miner posted $4.3 billion Ebitda for 2015
  • Miner says global output cuts are needed to support price

GMK Norilsk Nickel PJSC, rivaling Vale SA as the world’s biggest nickel producer, expects shrinking industry capacity this year that will help stabilize prices after a rout in the metal cut the mining company’s profit to the lowest level in six years.

Earnings before interest, taxes, depreciation and amortization dropped 24 percent to $4.3 billion last year, Norilsk said in a statement Tuesday. That was in line with the average estimate for $4.37 billion by 12 analysts surveyed by Bloomberg. Revenue declined 28 percent to $8.5 billion, while net income contracted 13 percent to $1.73 billion.

Nickel prices sank 42 percent last year on the London Metal Exchange, touching the lowest in more than a decade, as a slowing economy in China cut demand from the biggest user of industrial metals. The steel industry, the biggest nickel consumer, also suffered as China pumped record amounts of cheap steel into world markets as local demand waned.

“We do not believe that the nickel price is sustainable at the spot level in the long run,” Norilsk said in the statement. The company doesn’t see more downside as the metal “is already extremely deep into the cost curve.” At least 20 percent to 25 percent of world supply needs to be cut for the price to “enter into a sustained recovery,” it said.

It expects China’s nickel pig-iron output to fall by about 85,000 metric tons this year, while as much as 200,000 tons of production outside the country are at risk of closing.

“We expect that global primary-nickel consumption should remain unchanged in 2016 at approximately 1.9 million tons and the market to develop a deficit of 70,000 to 90,000 tons," the company said.

Norilsk is more optimistic about palladium and platinum. It sees current weakness in the price of palladium, down 29 percent last year, as temporary and expects the market to remain in deficit as primary supply falls about 4 percent because of cuts in South Africa. Platinum supply may drop 1 percent this year and demand increase by the same, it said.

Norilsk’s board this year approved a fund to invest in palladium and still sees Russia’s central bank as a potential seller of the metal should the two agree on a price and volume, Chief Financial Officer Sergey Malyshev said on a call with reporters.

The central bank sees the price as too low to sell, people with knowledge of talks between the lender and a group of investors led by Norilsk said in January.

Norilsk management doesn’t yet plan to seek dividend cuts from shareholders, who would have any final decision, and plans to keep this year’s capital expenditure flat at about $2 billion, Malyshev said. It also doesn’t plan to resume share buybacks as the stock price is volatile, he said.

Norilsk shares rose 0.6 percent to 9,202 rubles by the close of Moscow trading.

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