Norilsk Nickel Urges Output Cuts From Other Miners --Update
17 Maio 2016 - 2:01PM
Dow Jones News
By Alex MacDonald
LONDON--Norilsk Nickel Mining & Metallurgical Co. (NILSY),
the world's largest nickel producer, is urging other nickel miners
to consider cutting production in response to the low price
environment, but said it won't contribute to those cuts.
The Russian nickel producer, which also produces palladium,
platinum and copper, estimates that about 70% of the world's nickel
production capacity is currently loss-making, but only 17% is at
risk of shutting down even though the nickel price hit a 12-year
low in February and is still down 37% over the past year.
"We do hope that...this year there will be serious discussions
at management and boardroom [levels] as to how they should react to
the market, because for us there should be some response from the
industry" to the price drop, said Sergey Dubovitskiy, Norilsk's
head of strategy. But "given our lowest cost position on the cost
curve, this shouldn't be us," he told The Wall Street Journal in an
interview on Tuesday.
Neverthless, Norilsk expects nickel output from its core Russian
operations to drop to between 206,000-212,000 tons this year from
224,000 tons last year due to the closure of an aging nickel plant
and a shift toward nickel-refining operations in Western
Russia.
As the world's lowest cost nickel producer, Norilsk produces
nickel effectively at no cost since it is able to use the proceeds
from the sale of by-products, such as platinum and palladium, to
more than offset the cost of producing nickel.
Nickel has been the worst-performing industrial metal this year
because of massive stockpiles that accrued before Indonesia imposed
an export ban on nickel ore in early 2014. Slackening demand in
China, the world's second-largest economy, has also taken its toll
on nickel demand growth. The combination of the two means that
prices will remain low for the remainder of the year even as the
global market slips into a supply deficit for this year and
next.
Mr. Dubovitskiy expects nickel prices to begin recovering
thereafter as demand growth outstrips supply.
Nickel miners have held back on cutting production longer than
expected due to nickel price volatility, which makes it harder to
gauge future pricing. "In this type of environment it is really
hard to take the big decisions," Mr. Dubovitskiy said. There also
has been defiance from some diversified miners to cut costs since
they are able to cross-subsidize their operations, while other
miners receive government support to avoid shutdowns and job
losses. Some mining companies are still ramping up production to
benefit from lower unit costs through greater economies of scale,
Mr. Dubovitskiy said.
Norilsk Nickel is working to reduce price volatility in the
palladium market by launching a fund that is able to purchase up to
$200 million of the precious metal from hedge funds and other
speculators. The palladium fund, launched in February but still in
pilot phase, is designed to stabilize pricing in the market for
palladium, of which Norilsk is the largest producer. There are no
plans to introduce a similar fund to mitigate price volatility in
the nickel market, Mr. Dubovitskiy confirmed.
Separately, Mr. Dubovitskiy said he wasn't concerned about
electric-car demand growth. Such growth "might be quite impressive
but...in [a] 10-year period, we don't think it would cannibalize
much palladium consumption in catalytic converters," he said.
Electric cars have no need for catalytic converters, which contain
palladium and are used in gasoline-fueled cars to reduce
pollution.
In fact, he said demand for gasoline-fueled cars is forecast to
continue growing at a healthy rate in years to come. Moreover,
Norilsk also benefits from electric-car sales since vehicles, such
as those produced by Tesla Motors Inc. (TSLA), contain 80 kilograms
of nickel, he noted.
Write to Alex MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
May 17, 2016 12:46 ET (16:46 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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