ABOUT one-fifth of the global nickel industry is operating in the red. British metals analysts Brook Hunt use the glossier term cash-negative but the end result is the same (although the nickel situation is not as grim as aluminium, where China's growth is causing intense grief to non-China producers).
You would not want to be developing a new nickel mine at present, especially a laterite operation in which metallurgical complexity tends to cause unexpected, and often costly, problems.
So it is 20 per cent in the red, and -- looking at Brook Hunt's graph -- it won't take much more weakening of the nickel price to eliminate the profitability of another 20 per cent of world capacity.
And that's just on the basis of the cash production cost, leaving aside other overheads.
The portents are not looking good this week. The metal fell by 1.8 per cent in Monday's session on the London Metal Exchange, then another 2.1 per cent in Tuesday's trading to close at $US16,050 a tonne. A drop below that level would be a heavy psychological blow for nickel.
It is already seen as the worst performing base metal this year.
Stephen Briggs at BNP Paribas has gone on the record saying substantial production cutbacks were inevitable if the price did not recover quickly. Well, it has shown no sign of that.
The new mines coming on -- including the huge laterite project in Madagascar -- will make the situation only worse.
Nickel has been in surplus since the middle of last year and surpluses are expected to average up to 50,000 tonnes a year through to 2016.
Global economic slowing is partly to blame, too. Nickel use grew by 7 per cent last year but growth is barely above 2 per cent this year.
China figures
EVERYONE will be hanging on Chinese gross domestic product figures out tomorrow and any bad news will hit metal prices where it hurts. But the general concern about China's economy is only part of the metals story.
Apart from a global surplus in nickel from rising production, it doesn't help that China went on a buying spree last year, when its nickel imports almost doubled from 2010. That means there must be some impressive stockpiles somewhere and Chinese stainless steel producers won't be needing to buy up big this year from foreign miners.
There's a similar problem with coal. The independent Caixin news service reports there are huge coal stockpiles at many places in China, especially at Qinhuangdao, the large coal port in Hebei province.
A few weeks ago the stockpile at that one port reached 9.5 million tonnes, larger than the back-up after the global crisis of 2008. Coal-fired power stations also are holding large inventories.
Because of the oversupply, power stations are paying about 12 per cent less for their coal than two months ago.
These distortions caused by stockpiling combined with slowing economic activity will echo through the minerals business for some time. This has already occurred in alumina. In May, Chinese traders went on a buying spree ahead of Indonesia's export ban and ordered a record 720,000 tonnes. In June, however, imports plunged to 310,000 tonnes.
Mighty magnet
REFRIGERATORS and other household appliances contain permanent magnets, which in turn contain rare earths. In the case of magnets for fridges, these typically include about 3 per cent of the rare earth lanthanum, along with cobalt.
Now Japan's TDK has come up with a refrigerator (and washing machine and air-conditioner) magnet that has no lanthanum (or cobalt) and can achieve the same magnetic force without those components.
It is all part of Japan's reduce, replace and recycle policy on rare earths and the consequences are starting to show. Last year, Japan's rare earth imports fell 21 per cent from the previous year, and for January-April they were down a further 58 per cent on the same four months last year.
This coincides with reports of a plunge in Chinese rare earth magnet makers' orders from European manufacturers because of the economic crisis.
These trends will certainly put pressure on rare earth prices. The coming flow of rare earths from new non-China mines will add to that pressure.
ETFs on the rise
PRECIOUS metals have been sidelined of late in trading headlines, but investors have been moving into exchange-traded funds, judging by metal buying.
A net 38.7 tonnes of gold went into exchange-traded fund vaults in June, along with 0.7 tonnes of platinum bought by ETFs tracking that metal. Silver ETFs have boosted their holdings by 255 tonnes. Palladium was the only disappointment, with a small decrease in ETF holdings in June.
