The Barnes Hill nickel project is set in rolling countryside near Launceston in Tasmania.
Subject to finance and government approvals, the project is ready to move into construction. But at current nickel prices, such a move is unlikely.
The feasibility study for Barnes Hill is based on long-term nickel prices of at least US$20,000 per tonne. The current price is US$16,000 per tonne.
Nickel prices are struggling, being no higher today than they were in 2005.
The problem does not lie with demand. Some two-thirds of nickel is used in stainless steel, for which production has been growing in recent years at 5% per year.
Rather, the problem lies with competition from Southeast Asia and the Pacific.
Historically, stainless steel has been made using refined nickel (that is, nickel metal). However, in 2005, some Chinese producers started using iron-rich nickel ore, known as “ferronickel”, to make stainless steel. The production process concerned does not use refined nickel; rather, it makes direct use of the nickel in the ore.
Stainless steel made in this way is not high quality. But where nickel prices are above US$16,000-18,000 per tonne, it is cost-effective.
Since 2005, the increase in global nickel production has almost all come from ferronickel. This has been a boon for Indonesia and the Philippines, the main suppliers.
Australian nickel producers have not found the going easy. For example, BHP Billiton (Australia’s largest producer) said in its June 2012 production report that “a strong Australian dollar and weak nickel price continued to place pressure” on its nickel operations.
But is the gloom lifting?
In February this year, Indonesia announced that it is banning exports of unprocessed ores (including ferronickel) as from 2014, with an export tax to apply in the meantime, as a means of encouraging local processing.
This has boosted optimism among some analysts. For example, in May, Citigroup said that the Indonesian move is “likely to support nickel prices, with levels expected to move back above US$20,000” during the fourth quarter of 2012.
This assumes that others, such as the Philippines and New Caledonia, do not fill the supply gap created by Indonesia. And that overall nickel demand remains buoyant.
These assumptions are yet to be tested.
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