Nickel price up as strike looms at Falconbridge

If a new 3-year contract is not negotiated by midnight, April 28, one analyst said the impact on the nickel market could send prices back up to $10(US) per lb.

At press time, Falconbridge Chairman Bill James had joined in the discussions. A spokesman for Local 6855 of the United Steelworkers of America, said the bargaining team was still a long way from negotiating a deal that he hopes will reflect the recent strength of base metal prices.

Sparked by a 630-tonne drop in London Metal Exchange stocks, nickel recently bounced back to $6.96(US) per lb after dropping to a 4 1/2-month low of $6.51 per lb. An explosion at Outokumpu’s smelter in Finland and a shortfall at Inco Ltd.’s (TSE) Thompson, Man., mine have contributed to nickel’s current buoyancy.

“If the 550 technical staff call a strike, they will set up picket lines which employees at Falconbridge’s six Sudbury mines would refuse to cross,” said Graham Eacott, senior base metals analyst at Merrill Lynch Canada in Toronto. “Given that Falconbridge supplies 14% of the western world’s nickel, a shut down of the company’s Sudbury operations could have a pronounced affect on the nickel market,” he said. “I wouldn’t be surprised if nickel prices shoot up to $10(US).”

Eacott’s projections are based on the large contribution that the Sudbury mines make to Falconbridge’s over-all nickel and copper production.

In 1988, for example, they accounted for about 60% of the nickel and 56% of the copper that Integrated Nickel Operations (INO) sold in 1988. INO, which includes Falconbridge’s Sudbury operations, Norwegian refinery and custom feed business, produced all of the nickel and 29% of the copper which Falconbridge sold last year.

According to office and technical union president Henry Leore, an initial offer that included a 3% wage increase over three years was rejected by 99.3% of the union membership.

When asked how negotiations are progressing, he replied, “the distance is closing but we still have a long way to go.”

A prolonged strike could have an adverse impact on Falconbridge share price and make the company a more attractive takeover target to Toronto-based Noranda Inc., according to Eacott.

Noranda has promised to increase its stake in the nickel miner to 30% from 19.9%, but it is unlikely to do so while Falconbridge shares are trading on the Toronto Stock Exchange at $31.

“It isn’t Noranda’s style to buy at the top of the market,” Eacott said.

]]>