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Nickel Price Rising at Last

As I write, Thursday, July 14, French troops are on the march. Fortunately, they are not heading for the British Channel, rather they are stomping down the Champs-Elysees in Paris. This is Bastille Day (actually called La Fete Nationale in France), which commemorates the beginning of the French Revolution with the storming of the Bastille prison on July 14, 1789.

The celebration has been held on this morning in Paris each year since 1880, almost without exception, making it the oldest regular military parade in the world.

Bastille Day celebrations are also being held in Noumea, the capital of France's overseas territory of New Caledonia. Located in the Melanesia region of the southwest Pacific, and comprising dozens of islands, New Caledonia is known for its palm-lined beaches, marine life-rich lagoon and for nickel. Following a long-awaited price improvement, the latter is giving the French another reason to celebrate this week.

Nickel mining is a major part of the New Caledonian economy, accounting for over 7% of the country's GDP and as much as 80% of its foreign earnings. The country contains an estimated 10% of the world's nickel reserves, and New Caledonia is currently the world's fifth-largest producer with a mined output of some 46,000 t in the June quarter. The country has the longest history of mining in the Pacific islands, with nickel having been found in 1864.

The use of nickel (as a natural meteoric nickel-iron alloy) has been traced as far back as 3,500 BCE, but the roots of its current use are barely 260 years old, when an unknown red mineral that resembled copper ore was uncovered in Germany's Erzgebirge (Ore Mountains). When miners were unable to extract any copper, they blamed a mischievous sprite of German mythology, Nickel, and called the ore Kupfernickel (now known as niccolite, a nickel arsenide).

In 1751, Baron Axel Fredrik Cronstedt tried to extract copper from kupfernickel at a cobalt mine in the Swedish village of Los, and instead produced a white metal that he named after the spirit that had given its name to the mineral. The first industrial-scale smelting of nickel began in Norway in 1848 from nickel-rich pyrrhotite.

The introduction of nickel in steel production in 1889 increased demand for the metal, and New Caledonia provided most of the world's nickel supply between 1875 and 1915. The discovery of large deposits in Canada's Sudbury Basin in 1883, in Russia's Norilsk-Talnakh in 1920 and in South Africa's Merensky Reef in 1924 made large-scale production of nickel possible elsewhere.

Because nickel oxidizes slowly at room temperature, it is corrosion-resistant and historically has been used for plating iron and brass, coating chemistry equipment and manufacturing certain alloys that retain a high, silvery polish. Nickel has been widely used in coins, but is now most valuable in alloys; about two-thirds of world production is used in stainless steel.

The nickel market has suffered a difficult past five years, with the price falling from a peak of almost US$30,000/t in early 2011 to a low of close to US$13,000/t in 2013. After a recovery to over US$21,000/t in May 2014, the price more than halved in a two-year period, bottoming at just under US$7,600/t in February this year. 

Fortunately for New Caledonia, the price of nickel has rallied over the past five months to a nine-month high this week of over US$10,000/t, amid expectations of supply cuts in the Philippines, which is the world's largest producer of nickel ore, with some 135,000 t of contained metal in the June quarter. The country's new government has said mines falling short of environmental and welfare standards will be shuttered, and has ordered an audit of operations. Two nickel operations in Zambales, operated by Benguet Corp. and Zambales Diversified Metals Corp., have already been suspended for "various alleged environmental crimes, violations of the mining and environmental laws, and complaints of various groups against the alleged environmental impacts."

The price increase is auspicious for the launch this week by SNL Metals & Mining of its monthly Nickel Briefing Service. Editor Louise Gammon is bullish on nickel prices over the next 18 months, forecasting that the three-month price on the London Metal Exchange will average US$9,058/t this year and US$11,450/t in 2017.

SNL expects accelerating cuts in production, coupled with improving demand, to push the global nickel market into a deficit of 73,000 t this year, deepening to a shortfall of 145,000 t in 2017. Gammon says this will cut total stocks to 18 weeks of average consumption, compared with 24 weeks at the end of last year. Nickel is not yet storming the price gates, but the scenario is optimistic enough to bring producers onto the streets with the French.

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Jul 18, 2016