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  1. dlux

    13,264 posts.


    Nickel boom faces buyer gloom
    By Robin Bromby
    November 03, 2003
    Nickel prices continue to run like a locomotive on full throttle but two time bombs are ticking away for punters who have put their shirts on the metal.

    One is that many of the exploration plays may miss the bus, that is, get into production after the nickel boom has had its day. The second is that the metal's price – and looming shortages – could force the main buyers, stainless steel manufacturers, to look for cheaper substitutes.

    Nickel for three-month delivery reached $US11,800 a tonne on Friday at the London Metal Exchange, compared with $US7135 a year earlier.

    Three months ago analysts said the metal might peak above $US10,000/tonne, but it now seems headed for $US12,000 rather than stalling.

    Stainless steel makers have been bidding up prices to corner supplies amid fears that China's rampant demand could see shortages grow until 2006.

    But Sydney-based investment adviser Fat Prophets has warned clients to stick to junior producers rather than explorers.

    It said the nickel explorers would struggle to discover economic deposits soon enough to start production while metal prices were still high.

    Investors should assess any discoveries at the long-term nickel price outlook of between $US3 and $US3.50 a pound. At the present price, nickel is $US5.35/lb. Fat Prophets resource analyst Steve Bartrop said most of the local nickel plays were underground mining scenarios that had yet to prove a resource.

    The plans by Canadian giant Inco to develop its large Goro deposit on New Caledonia and Voisey's Bay in Canada would have an impact on nickel supply later this decade.

    Investors should look for companies either in production or about to start mining and selling nickel. "Look for who can capture the upside now or next year and pick up the premium prices," Mr Bartrop said.

    Fat Prophets believed the physical squeeze in the nickel market would last for two years.

    Among its favoured plays are Mincor Resources, already producing from two mines and about to develop two others, and Sally Malay Mining, which is expected to make its first nickel shipment next August.

    Meanwhile, Canadian producer Falconbridge has raised the spectre of nickel consumers looking for substitutes due to the forecast world shortage and the soaring price.

    Falconbridge market research director Santo Ranieri said if users did make a switch – and that became permanent – it could be very harmful to the nickel industry.

    He said prices of the metal were moving into uncharted territory.

    "The key question is not how high nickel prices go, but how long they stay high," Mr Ranieri said.

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