FOCUS - Only quarter of loss-making nickel capacity at risk of shutdown - Norilsk

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Vivian Teovivian.teo@fastmarkets.comJoint News Editor - Asia

Singapore 17/05/2016 - More than 70 percent of global nickel production is loss-making at the first-quarter average spot price but only 17 percent of these operations are at risk of closure, Norilsk Nickel said.

Nickel's average spot price in the first quarter was $8,526 per tonne while the consensus price forecast for the metal for this year is $9,889, according to a presentation given by Norilsk on Monday.

Of the loss-making operations that are not at risk of shutdown, some 44 percent are diversified miners, it noted.

Analysts have identified assets owned by diversified producers who are prepared to wait for a nickel price recovery as the main reason why nickel production cuts have been slow despite a 40-percent price collapse last year.

Most of the nickel industry became EBITDA-negative only in the second half of last year and pressure on cash flows is mounting in the first half of this year, Norilsk added.

The nickel market is moving into a deficit this year because moderate supply cuts have been triggered while global nickel consumption growth is expected to hold around 2.0-2.1 percent this year and next year, it said.

Last year, implied destocking of nickel units in China, excluding the build-up of SHFE inventory, amounted to 10,000 tonnes while the country continued to record strong increases in ferronickel and refined nickel imports in China, which has extended into the first quarter of this year.

Concurrently, nickel ore imports from the Philippines to China fell 26 percent in 2015 and continue to drop in 2016, with the mine life of nickel ore reserves with a nickel grade of more than 1.5 percent in the Philippines is estimated at just 2.6 years.

In Indonesia, only three nickel pig iron (NPI) projects in Indonesia have a high probability of completion, including Tsingshan Group's three-stage project that was commissioned last year, Norilsk said.

Nine other projects with total capacity of 70,000 tonnes per year (nickel contained) have a medium chance of completion and eight projects with total capacity of 150,000 tonnes per year have a low chance of completion.

Indonesia's NPI production has a high probability of reaching more than 50,000 tonnes this year and just below 100,000 tonnes next year, Norilsk said.

LME three-month nickel was last at $8,715 per tonne on Tuesday, down $5 from Monday's close.


(Editing by Mark Shaw)



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