EDITORIAL PAGE — The vicissitudes of nickel

In June, nickel prices were relatively steady at above US$2.40 per lb. That isn’t a price to provoke a Mike Sopko, the Inco chief, or Falconbridge’s Frank Pickard to break out the champagne. In fact, at that price level, even a celebration around a 6-pack of home brew would seem ostentatious. But it was, nevertheless, a price Inco and the other big nickel players could more-or-less live with temporarily.

Over the past month and more, the situation has deteriorated alarmingly. The price is dragging bottom — the producers pray this is the bottom — at US$1.82 or so. Nobody — not Inco, not Falconbridge, not Sumitomo — can make money at that level. So it didn’t surprise industry-watchers that Inco, the market leader, was forced to lower 1993 and 1994 production, again. In fact, it has been consulting with its unions over how best to implement the cutbacks. Last week, Inco announced that it planned to cut 60 million lb. from its Canadian operations. Immediately after the public pronouncements, Sopko flew to Russia to meet with officials of Noril’sk. Noril’sk, of course, is the huge Russian nickel producer and likely the primary cause of devastation in the nickel market (Russian nickel exports combined with western output are drowning the market).

However, an Inco spokesman flatly denied that Sopko’s Russian tour, to include stops in Moscow and Noril’sk, was a bid to persuade the Russians to reduce production. “We aren’t running a cartel here,” the spokesman was quoted as saying.

True enough, the nickel industry is no OPEC. And it is likely that Sopko’s Russian tour was planned weeks in advance and that its coming a day after the production cutbacks were announced is coincidental.

But one thing is certain — Inco’s announced cutbacks are meant as a very clear signal to other producers that they, too, must follow suit. It would be suicidal for Inco, on its own, to cut production and watch the competition whittle away at its market share.

Inco had already cut production by 20-30 million lb. and Falconbridge slashed output by 15% to just below 80,000 tonnes this year. Other foreign players, such as the Japanese, have followed suit, notes Metal Bulletin. Smaller nickel sources, such as Cominco Resources International’s Glenbrook smelter, have been shut down. It is reported that even Noril’sk has trimmed output, mainly because of production difficulties, by some 20%.

Mine production of nickel from established market economy countries dropped to 292,000 tonnes during the first half of this year from 313,000 tonnes in the same period a year ago. The International Nickel Study Group also reports that production in the first seven months of this year from the Commonwealth of Independent States dropped to 109,000 tonnes from 138,000 tonnes in the corresponding period last year.

Nevertheless, London Metal Exchange (LME) and producer stocks amount to 217,000 tonnes, or 478 million lb., equivalent to about four months of consumption. For the market to reflect some sort of balance, at least 100,000 tonnes must come off LME-producer inventories, according to analysts. This latest round of cutbacks, then, is a measure of how difficult the situation is. Contrast this with the market only a few short years ago, when nickel prices peaked at about $10

per lb. in 1990. Makes you weep, doesn’t it?