World's Biggest Nickel Producer Sees Higher Prices on Chinese Demand -- Update

   By Ese Erheriene 
 

LONDON--The world's biggest nickel producer, Norilsk Nickel (NILSY), sees nickel prices moving off six-year-lows on the back of strong Chinese demand, the company's deputy chief executive, Pavel Fedorov, said Monday.

China's large stockpiles of high-grade Indonesian nickel are running down, and the Asian giant won't be able to rely on new supplies from Indonesia because the export ban in place since January last year will remain in place, Mr. Fedorov said.

"Inventories are going down [and] there is a structural deficit. China has no other route so they are calling us--they've eaten up all the high-grade ore they sourced from Indonesia. We see all the signs of industrial demand still being there," said Mr. Fedorov.

Nickel prices on the London Metal Exchange hit near-six-year lows last month at $12,205 a metric ton because of concerns that there will be too much production. They have since come back somewhat: on Monday, spot nickel was trading on the London Metal Exchange at $13,775.00, down 0.65% from Friday.

Mr. Fedorov shrugged off the worries about too much supply, and said Norilsk has no plans to close down production.

He said that because Norilsk mines gold, platinum and other precious metals alongside nickel, it can produce nickel at far lower costs than other producers. Mr. Fedorov said that while many producers aren't profitable at prices below $18,000 a ton, Norilsk is "minting in this environment" of $12,000 prices.

Earlier this month, Canada's BMO Research said the firm's focus on nickel, palladium and platinum puts it in a sweet spot in terms of minerals, and that it is one of the most efficient miners out there. BMO said it rates the firm's American Depositary Receipts at outperform with a target price of $23.00. On Monday, the ADRs were up 0.8% at $20.95. The shares are up nearly 52% since the beginning of the year.

Some analysts, however, think nickel prices are headed lower.

"We still see no major production cutbacks in nickel. We still see rising inventories [and] the latest data still show a supply surplus on the global market. Over a longer term, these are clearly arguments for lower prices," said Daniel Briesemann, a metals analyst at Commerzbank.

Mr. Fedorov also said that currency moves were driving platinum prices lower.

The loss of value in the South African rand has made platinum mining there more lucrative, according to Mr. Fedorov.

"[The] rand depreciated quite a bit. So for these guys production became more economic and that's why you actually see the spillover effect on platinum prices," he said.

South Africa accounts for about a third of global platinum supply, but production has been hit by operational and labor issues.

Mine workers in South Africa went on strike in January last year for five months, which led to a 21% decline in production in 2014--its lowest level in 15 years at 4.7 million ounces, according to the Thomson Reuters GFMS Platinum and Palladium Survey 2015.

The strike is now over and production is returning to normal. But the Norilsk Nickel executive said concerns will still push prices higher.

"We still see pretty major risks to stable and uninterrupted supply of platinum from South Africa, those risks need to be addressed," Mr. Fedorov said.

Platinum on the London spot market was trading up 1.0% at $1,175.62 a troy ounce on Monday. Prices were down 3% since the beginning of the year.

Write to Ese Erheriene at [e-mail]

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