Quarter of Nickel Miners Seen Battling to Survive in Price Rout

  • Sticky supply is helping keep prices low, IHS's Kaplan says
  • Average price in 2016 seen falling 25% to $8,927 a metric ton

A quarter of the world’s nickel miners are caught in a game of chicken, churning out the stainless steel ingredient at a loss in the hope that competitors will shut first, according to research firm IHS Inc.

The price of nickel slumped 30 percent in the past year, the worst performance among major metals traded on the London Metal Exchange, as slowing demand helps feed a global glut. Stockpiles on the LME are up fivefold since 2011, and Goldman Sachs Group Inc. estimates a surplus of 90,000 metric tons in 2016, according to a Feb. 8 report.

“Very few industries can support that, and yet we’ve seen a minimal supply-side reaction,” Jason Kaplan, a commodities research manager at Englewood, Colorado-based IHS, said Tuesday in a telephone interview. “Everybody is looking at each other hoping that the guy down the street will fail before them.”

He estimates that 70 percent of producers globally are losing money on an operating-cost basis. Of those, 40 percent are diversified companies that won’t be hurt by the nickel losses, 5 percent to 10 percent get government subsidies or some other form of support, while about a quarter of the industry is becoming price-sensitive, he said.

Kaplan forecasts an average price of $8,927 a ton this year, 25 percent lower than last year.

“We think it’s the bottom now, so we see very little further weakness, but we also don’t see it rising,” he said.

About 90 percent of production is profitable at $15,000, but returning to that level would require a sudden shutdown in supply, Kaplan said.

Many producers are vertically integrated and use their own nickel to make stainless steel. “You’re losing on one side, but gaining on the other,” he said.

Most loss-making nickel is from companies producing the lower-grade pig iron variety, which requires more energy, Kaplan said.

Following Indonesia’s 2014 ore-export ban, analysts predicted a shortfall in nickel. Indonesia was the world’s biggest producer of mined nickel in 2013, but dropped to sixth place last year. Offsetting that decline in supply was an increase in Philippines production, a large amount of which was nickel pig iron exported to China. In 2014, the year Indonesia cut back ore exports, the Philippines increased output 30 percent to 410,789 tons, or 20 percent of global mined production, according to the World Bureau of Metal Statistics.

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