Inco announces production cutbacks

Market conditions have forced Inco (TSE) to reduce nickel production at its Canadian operations by 60 million lb.

The cutbacks at the Ontario and Manitoba divisions will occur during the December, 1993-to-July, 1994 period. Some 40 million lb. of the 60-million-lb. cutback will take place during the first quarter of 1994. In the Ontario division, which has been producing about 20 million lb. of nickel per month, all operations, except those required for essential functions, maintenance and customer sales and service, will be shut down for eight consecutive weeks, beginning in December.

Certain surface operations, such as the specialty nickel powder plant in Copper Cliff, Ont., and the precious metals refinery in Port Colborne, Ont., may be required to operate intermittently. In addition, the Ontario division will take a 1-month vacation shutdown, scheduled for next July. In the Manitoba division, which has been producing about 10 million lb. of nickel per month, operations will be shut down for four weeks from Dec. 27 to Jan. 24, after which time operations will resume on a 4-day work week. This reduced work week will continue until the beginning of the summer vacation shutdown, scheduled for four weeks next July.

The cutbacks will mean Inco, which supplies about 35% of the world nickel market, will produce about 360,000 lb. nickel in 1993 from all of its mining operations, down from a projected 410,000 lb. (In addition to the 20,000-lb. cutback to come in December, the company underwent a 30,000-lb. reduction earlier this year).

A high inventory level has made it difficult for producers to sell nickel. The nickel inventory at the London Metal Exchange (LME) was recently sitting at 260 million lb. “It’s greater than one year’s production from our Sudbury area mines,” Inco spokesman Robert Purcell said.

One year ago, the LME nickel inventory stood at 150 million lb. At the end of 1991, it stood at 26 million lb.

Other nickel miners have yet to indicate their plans with regards to cutbacks. “If the other producers come on board and reduce their inventories accordingly, then the inventory level should come off quickly,” Purcell said. Nickel, which averaged US$3.18 per lb. in 1992 on the LME, recently touched US$1.84 before staging a small rebound.

Some analysts see some improvement in the nickel market. David Williamson of the London-based International Review newsletter wrote recently that Russian shipments are running well below expectations: “Forecasts of a significant rise in stainless steel production for 1994, together with a continuation of a low level of Russian deliveries, could close up the stock surplus and, helped by technical trends, cause a positive price move.”

In addition to the Canadian cutbacks, production at Inco’s United Kingdom nickel and precious metals refineries will be curtailed in line with the receipt of reduced shipments of intermediate feeds from Canada. The freeze on hiring and salaries at Inco’s corporate offices and support departments will continue. Canadian corporate staff employees will take a 2-week shutdown during the Christmas-New Year’s period while commensurate actions will be taken in the U.S. corporate offices.

The 10% cut in salaries of all corporate officers and fees payable to Inco’s board of directors (implemented in November, 1992) will also continue. Measures have already been taken by the company to curtail capital expenditures, which will total less than US$200 million in 1993 (down from a planned level of US$225 million) and further constraints on capital expenditures will be imposed in 1994.

A series of actions has already been instituted at Inco’s alloys and engineered products businesses in the U.S. and the United Kingdom to reduce costs and conserve cash, while producing at levels sufficient to meet customer requirements.

Inco says the earnings and cash generated from the sale in July of its 62% interest in TVX Gold (TSE) have allowed the company to reduce debt by US$120 million to date this year, as well as increase its cash reserves by about US$60 million and improve its debt-equity ratio to its strongest level since 1990.