Nickel Riding High
By Greg Felton
Apr, 12th
Summary
Nickel is one of those resources that most of us take for granted. Except for 5-cent pieces and nickel-cadmium batteries, the silvery-white metal hardly comes to mind, yet without it our lives – especially our domestic lives – would be very different.
Because of its resistance to corrosion, high strength over a wide temperature range and pleasant appearance, nickel is a vital component of stainless steel, the manufacture of which consumes almost two thirds of the world’s supply. The rest is used in nickel-based alloys, electroplating, alloy steels, foundry products, batteries, and copper-based alloys.
Where it’s found
Nickel is commonly found with copper or cobalt deposits and is often a byproduct of platinum group metals mining operations — platinum (Pt), palladium (Pd), rhodium (Rh), iridium (Ir), ruthenium (Ru) and osmium (Os). It is found in two types of ore deposits: Sulphide deposits, where the principle mineral is a ferronickel compound called pentlandite and laterite deposits, found only in tropical regions like Australia, New Caledonia, Indonesia, Guatemala and Brazil. Niccolite is generally uneconomic as a source of nickel because of its arsenic content, especially when it reaches several hundred parts per million.
How it’s extracted and processed
Nickel is extracted though open-pit or underground mining operations. After extraction, nickel ore is processed into concentrate (17-18% nickel by volume) and then subjected to pryometalurgical techniques to produce a nickel-sulphide matte consisting of nickel (63-65%), copper (3%), cobalt (1%), iron (5%) and sulphur (25%). The matte is then purified to more than 75% pure nickel, after which is made to react with carbon monoxide to produce nickel carbonyl, which is more than 99.99% pure.
Consumption and demand
Currently, China is the world’s largest nickel consumer, accounting for about 15% of the global total, although AME Mineral Economics predicts a jump to more than 22%. To meet increased demand, the U.S. Geological Survey reports that Chinese and Australian companies are beginning nickel exploration in China to augment current imports from Cuba and a new mine in Spain.
China’s demand growth for stainless steel has been strong since 2000 and surpassed Germany’s demand in 2005. U.S. stainless steel production also hit a record level of 1.6 million tons in 2005, an increase of 3% over 2004, which further increased world demand.
Increased demand has seen nickel reach highs not seen since 1989. In 2004, demand outpaced supply by 6 per cent, and concern that supply would not be able to keep up with demand before new mines began operation. Such was the case between 2005 and 2006.
Production and supply
Russia accounts for 40% of world nickel production, courtesy of the 10 mines that comprise the Norilsk mining complex in Western Siberia. Next come Canada (15%), New Caledonia (12.5%) and Australia (12.5%).
Barry Allen, an analyst with Research Capital in Toronto said small producers could to do well because further discoveries and production would not dilute current supply.
Among junior companies showing positive or better-than-expected drill results are Victory Nickel, First Nickel, Franconia and Ursa Major. Of particular note, First Nickel has issued revised resource estimates on its Lockerby property to include an additional 38 million pounds of contained nickel.
Analytical Outlook
Even though new sources of nickel will soon come on-line, investor outlook for the metal is uncertain. The high price is pushing some stainless steel manufacturers to cut back nickel content. The USGS reports that type 201 (3.5% to 5.5% nickel) was being substituted for type 304 (8.0% to 10.5% nickel). Bill McCutcheon, an analyst with the Minerals and Metals Sector, Natural Resources Canada, says part of the reason for this supply shortfall was the new Voisey’s Bay mine, which did not produce up to initial expectations, but also expected that increased production capacity would bring the price down.
One of the problem areas in nickel supply is the PT Inco project in Indonesia, which has been hampered by drought conditions that kept reservoir levels low. In December, Inco reported that it was losing 130,000 tonnes per week of nickel production, but abundant rainfall since has allowed Inco to meet its established production targets.
Besides the stainless steel industry, outlook for increased demand comes from the transportation sector as at least five automobile manufactures plan to install nickel-metal hydride (NiMH) batteries in their gasoline-electric hybrid vehicles for the 2007 and 2008 model years. BaseMetals.com analyst Martin Hayes sees no abatement in the high price both because of no new scheduled sources of supply and because manufacturers are not looking to substitute. Similarly bullish on the price of nickel is Allen, who cites delays and cost overruns at BHP billiton’s Ravensthorpe mine and Inco’s Goro project in New Caledonia as factors affecting the price.
For the short term, the price of nickel looks to stay strong and test new highs, since downside pressures appear to belong to the medium or long term.. These include a slowdown in China’s infrastructure development, or a sharp drop in the value of the U.S. dollar as a result of ballooning trade and budget deficits. Also, the Japanese company JFE has developed a nickel-free stainless steel, but this is too new to have any effect.
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