Nickel Market Deficit Expected in 2005, Near Balance in 2006

Strategic Insights -

Falconbridge Ltd., a leading nickel and copper producer, forecasts a market deficit of 16,000 metric tons of nickel this year, according to Santo Ranieri, the company's director of research. However, the deficit is expected to dwindle in 2006 to a near-balance between nickel supply and demand, driven by a significant increase in supply growth. Ranieri noted that the outcome depends heavily on economic growth and other factors in 2006.

Key Takeaways:

  • Falconbridge forecasts a nickel-market deficit of 16,000 metric tons in 2005, citing supply constraints as the main reason.
  • Supply growth is expected to ramp up by 6.7% in 2006, with the net result being a 2006 market deficit of just 1,000 metric tons.
  • The actual outcome will depend heavily on economic growth and other factors in 2006, according to Ranieri.
  • Most forecasters expect fairly good growth in 2006, which may mitigate the supply constraints in the nickel market.
  • Inco Ltd., a rival of Falconbridge, also expects a nickel-market deficit of 16,000 metric tons in 2005.
  • The lack of new supply from major nickel projects starting up in the next two to three years is expected to keep the market tight.
  • Falconbridge's first-quarter earnings rose 20% to $221 million or $1.21 a share from $184 million or $1.01 in the same 2004 period.
  • Noranda Inc.'s takeover bid for Falconbridge stock has received "very positive" support from institutional investors, according to Falconbridge Chief Executive Aaron Regent.

Statistics:

  • 16,000 metric tons: expected nickel-market deficit in 2005, according to Falconbridge
  • 5.5%, 6.7%, and 1,000 metric tons: expectations for nickel demand growth, supply growth, and market deficit in 2006, respectively
  • 20%: increase in Falconbridge's first-quarter earnings
  • $221 million, $1.21, $184 million, and $1.01: Falconbridge's first-quarter earnings, earnings per share, and corresponding 2004 figures
  • 150: number of institutional investors met by Falconbridge and Noranda in the past four weeks about their planned combination
  • $3 billion and $3.1 billion: original and implied value of Noranda's takeover bid for Falconbridge, respectively
  • 41%: percentage of Falconbridge shares that Noranda is bidding to acquire
  • 1.77 and 1.21: ratio of Noranda shares to Falconbridge shares in the takeover bid and Falconbridge's earnings per share, respectively

Sources:

  • Dow Jones Commodities News via Comtex, April 21, 2005
  • Falconbridge Ltd.
  • Inco Ltd.
  • Noranda Inc.