Vale Bets on Long-Term Nickel Price Strength as Construction Starts on $2 Billion Newfoundland Processing Plant

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Researched by Industrial Info Resources (Sugar Land, Texas)--Vale (NYSE:RIO) (Rio de Janiero, Brazil) is reining in short-term nickel production through extended shutdowns, while at the same time bolstering long-term nickel production by moving forward with strategic nickel projects. This comes at a time when the nickel demand is at a multi-year low and nickel prices appear to be at the bottom of a two-year decline in which prices have dropped 80%.

Construction has started at Vale Inco's $2 billion nickel hydrometallurgical processing plant in Long Harbour, Newfoundland. Civil and site preparation work, as well as the demolition of old buildings, is under way. Once completed in 2013, the plant will process nickel ore from the Voisey's Bay project. The project will require 27,000 tons of structural steel, 122,000 cubic meters of concrete, 350,000 meters of piping, 950,000 meters of electrical cable, and 1,600 tradespeople, including pipefitters and electricians.

Vale Inco will close five mines, a smelter, and a nickel refinery in the Sudbury, Ontario, area for a two-month period because of the poor nickel market. The closures will actually coincide and extend planned maintenance shutdowns that are scheduled for this summer.

Vale is also delaying the startup of the $2.2 billion grassroot Onca-Puma Nickel Mine in Brazil until the first quarter of 2011 because of market and permitting issues. Construction began in early 2007 on the project. Hatch Limited (Sao Paulo, Brazil) is the engineering, procurement and construction management contractor on the project. Odebrecht SA (Sao Paulo) is the construction contractor.

Nickel prices reached an all-time high in 2007 of about $50,000 per ton. Prices are currently at about $10,000 per ton, just up from five-year lows a couple of months ago. Nickel prices during the last few months have increased somewhat, in part because of increased imports to China, which appears to be taking advantage of the low prices to build up inventory. However, since the major end-use market for nickel is stainless steel, it will take a significant rebound in the depressed stainless steel market to positively impact the long-term nickel prices.

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