Inco declared a zero dividend payout, which was in line with Ken Yap’s (Macq stock analyst) anti-consensus view. He keeps Underperform rating on INCO based on a nickel price forecast of US$4.50/lb. That said, Jim Lennon (Macq commodity analyst) acknowledged that the risks are gradually moving to the upside as the year progresses and due to a potential Vale Inco strike in its Canadian nickel operations. The new labour contracts are due for renewal at the end of May and a disruption could affect around 8% of 2009 world output.
Nickel climbed by 3.3% on Friday and by over 16% for the week, helped by the news that Vale is to shut down its Sudbury nickel operations in Canada (8% of world nickel supply) for a period of eight weeks, from 1 June to 27 July, following maintenance work in May (it also has labour contracts up for renewal in May). Vale also announced a delay in commissioning its Onca Puma nickel project in Brazil, previously scheduled to come on-stream in January 2010, by ‘at least’ one year on delayed environmental permitting.
Nickel: pinch-point charts & market expectations
[Report attached] Pinch-point charts provide a simple way of comparing metal prices with inventories; and although the relationships are by no means precise, they do at least provide some guide to where prices have traded historically at different levels of inventory.
For nickel, prices have traded at slightly higher levels relative to inventories than previously; but with industry costs (particularly capex costs) still higher than was the case in earlier years, this is perhaps not surprising. The rally in the past 2–3 weeks, which has taken prices up from levels around $4/lb ($8,800/t) to around $5.60/lb (around $12,500/t) has, however, lifted prices well above the pinch-point curve.
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