Ramu NiCo doing well, despite price drop

 RAMU Nickel project in Madang is going well despite the fall in nickel price caused by weak stainless steel production outside China, according to Highlands Pacific Ltd.

The company holds an 8.56% interest in the project carried to production, which can be increased to 11.3% once debt has been repaid out of cash flow. 

Highlands Pacific said this after investment bank Macquarie released a research stating that the nickel prices have seen a sharp fall in the past week as part of the broader commodity sell off and stocks on the London Metal Exchange (LME) currently stand at historically high levels.

According to data obtained from the International Nickel Study Group, the market has been in a sustained surplus since 2011. 

Macquarie said despite the surplus, nickel prices have lost their typical relationship to stocks, with prices today higher than they were in August 2012, when stocks were 50,000 million tonnes lower.

However, the bank said that a sharp fall in the nickel price and rising open interest implies that large shorts have been put in place over the past month.

“The weakness in the nickel market is due to weak stainless steel production outside China – production is estimated to have fallen year-on-year in Japan, Europe, Korea and Taiwan in the first three months of 2013,” Macquarie said.

Primary nickel has also suffered from an increase in the amount of secondary nickel being used in the European stainless steel industry. 

The bank expected a nickel surplus of 82,000 million tonne in 2013, with supply up 5.6% year on year at 1,856,000 million tonne.

“From a fundamental perspective there is no reason for optimism about the nickel price in 2013 unless there are large-scale production cuts,” Macquarie said.