MOSCOW/LONDON, Mar. 10 -- Nickel prices must rise by at least 5 percent for a sustained period to prompt miners to restart more capacity idled by the global economic slowdown, a director of the world's largest producer said on Tuesday.
Anton Berlin, director of Norilsk Nickel's (GMKN.MM) marketing department, said nickel producers were wary of a slow rebound in demand for stainless steel and that investor interest in commodities was playing a large role in setting metal prices.
"I wouldn't expect another wave of relaunches until the price is substantially higher. I'm guessing it should be at least $23,000 to $25,000 (a ton)," Berlin said at the Reuters Global Mining and Steel Summit. Nickel, which gives stainless steel its strength and sheen, is trading just below $22,000 a ton. It has risen over 15 percent in value this year and is two-and-a-half times more valuable than at its trough in the fourth quarter of 2008.
But a Reuters poll of analysts forecast an average London Metal Exchange cash nickel price of $18,185 ton in 2010, rising to $19,069 a ton in 2011.
Nickel producers worldwide idled production or delayed new projects when demand fell, but some are now looking to bounce back. Brazilian miner Vale (VALE5.SA) has said it will push its Sudbury operation in Canada toward full output.
Norilsk, which supplies over half of the world's nickel from its mines deep in the Russian Arctic, suspended its operations in Australia when the crisis shredded demand.
Berlin said he could not comment on Norilsk's plans for the operations. Asked about their possible resumption, he spoke in general terms about the nickel industry worldwide.
"Relaunching a mine is a capital investment. You have to spend a certain amount of money to start it again," he said.
"If the price goes to $25,000 tomorrow, you are not going to open the mine, because you want to understand that a certain price level will stay.
"What you are looking for is not a price that will cover the cost, but a profit margin. My assumption is that, as an owner of a mine, you would want at least a 10 percent return, or 20 percent."
Norilsk sold close to 60,000 tons of nickel to China in 2009, or slightly over 20 percent of its total global sales. Although Chinese demand will continue to grow, further growth in sales to the country would be limited, Berlin said.
"We've obtained a certain share of this market. Once you get to a certain level -- in our case, it's roughly 25 percent -- it's hard to grow because of competition issues and because your customers would like to see diversification of supply."
Stainless steel demand, while showing signs of recovery, had not yet returned to pre-crisis levels, he said. Consumers have yet to resume placing regular, long-term orders.
"In the United States and Europe, what we are looking for is recovery -- getting back to the pre-crisis level. In China, it's definitely growth. The question is: what percentage of growth?
"Even if things go smoothly, it will take some time before the full consumer chain goes back to its old patterns and places long-term orders."
Berlin said supply-demand fundamentals alone were not enough to determine the price of industrial metals. While mining costs are rising worldwide due to the depletion of major ore bodies, investment funds would play a large role in determining prices.
"The investor community has become a very important factor in the overall market," he said.
"The cost of mining nickel is going up and in future will continue to grow, but on the other hand it doesn't have that much influence in comparison with investor demand.
"They don't need the cathode to be stored in their warehouse to have a position, either long or short, in this market."