* Billionaire Clive Palmer earmarks $1 bln to upgrade nickel
* Wants to improve margins to battle plummeting prices
* Xstrata, Vale, others soldier on with big projects
* Extra output could deepen supply glut
By James Regan
SYDNEY, May 3 Australian mining magnate Clive
Palmer is joining Vale, Xstrata and other sector heavyweights
pouring money into nickel despite a dire near-term outlook for
demand, as they plough on with projects bought on the cheap or
as part of corporate takeovers.
Hopeful that appetite will pick up as the global economy
improves, they are reluctant to shed assets after investing
billions. But that risks deepening a supply glut in the short
term and piling more pressure on nickel prices, which have
fallen around 13 percent so far this year and were the worst
performer on the London Metal Exchange in 2012.
Palmer, a self-described eccentric who is building a replica
of the Titanic, plans to spend a hefty $1 billion this year
upgrading an ageing nickel refinery in Australia, battling to
reduce production costs through steps such as revamping
equipment and waste disposal operations.
"The $1 billion ... will help make the refinery more
efficient in a time of low nickel prices," said Andrew Crook, a
business adviser to Palmer. He declined to give details on
operating costs as the Yabulu plant is privately owned.
Xstrata Plc, Vale SA, First Quantum
Minerals Ltd, China Metallurgical Corp, Sherritt
International and Sumitomo Corp are among
companies spending heavily to build new nickel mines and
Most of these were snapped up at low prices or as non-core
components of takeovers, such as Vale's buyout of Canada's Inco
and Xstrata's purchase of Falconbridge, both in 2006. Soon after
that, nickel zoomed above $50,000 a tonne, more than three times
Now nearing completion, they are running head first into an
oversupplied market, hurt by weak sales to stainless steel
manufacturing, which buys two-thirds of the world's nickel.
LME nickel is trading at around $15,000 a tonne,
over $6,000 off its 2012 peak, with UBS saying prices this year
will average only slightly higher at about $17,000.
Mining consultants Wood Mackenzie estimate at least 40
percent of the world's nickel industry is currently running at a
loss. But industry executives are holding on for an upturn.
"We are expecting things to pick up in the second half of
the decade as demand recovers from its cyclical low and all the
new capacity coming on now proves inadequate to meet future
market requirements," said David Singleton, managing director of
Posiedon Nickel, which is spending A$197 million ($203 million)
to redevelop an Australian nickel mine.
NEW CALEDONIA, NEW SUPPLY
Xstrata this month started production at its $5 billion
Koniambo nickel mine and smelter in New Caledonia, six years
after it came packaged with the Falconbridge acquisition.
The French South Pacific territory holds a quarter of the
world's reserves and is set to produce a further 130,000 tonnes
of nickel - one-tenth current global output - when Koniambo gets
into stride in late 2014 and Vale's equal-sized Goro project
there is at full steam.
But the bleak outlook could be driving some producers to
look for a way out, with Vale promising a review this year of
Goro's ability to turn a profit and some analysts saying it
could end up selling all or part of the project.
As part of his refinery revamp, Palmer will add new rail
lines to port and establish his own stevedoring operations.
Separately, his company Queensland Nickel, has also
commissioned four new bulk carriers to transport ore to Yabulu
from Asia and the South Pacific.
But the investment in the plant, built nearly 40 years ago,
is unlikely to boost output beyond the 35,000 tonnes of nickel
produced each year.
"The world's got plenty of nickel already," Palmer's
adviser, Crook, told Reuters.