Nickel supply continues to spring surprises.
The stainless steel input fell harder during the summer sell-off and rallied less than the others on the QE3-fueled bounce in September.
Since then the broader price pull-back has seen three-month nickel crash back to below $ 16,500 per ton, a level where it is challenging the top end of the production cost curve.
The reason for this consistent underperformance is not just concern about the state of the stainless steel sector. After all, global growth fears have affected just about every industrial commodity from aluminum to iron ore to zinc.
What has marked nickel out since the start of the year and what continues to weigh so heavily on prices is the market's supply side.
Supply is expected to exceed demand by 50,000 tons this year, according to the International Nickel Study Group.
It will do so again next year but the scale of surplus will depend on the success of a wave of new projects currently entering production, a classic commodity example of bad timing.
Several of these use high-pressure-acid-leach (HPAL) technology, which has up to now enjoyed a highly mixed performance record, throwing a major "known unknown" into the mix.
It is turning out to be only one of several supply-side variables, including what is shaping up to be a possibly industry-changing evolution in Indonesia.
The nickel cost curve is defined by China's nickel pig iron (NPI) sector, which is problematic since this relatively new production stream is still evolving fast with a new generation of lower-cost operators starting up over the last couple of years.
It is also problematic because there is poor statistical visibility on NPI production levels.
Anecdotal reports suggest there has indeed been a supply response to the low price environment, albeit not one that is obvious from China's call on nickel units from the rest of the world.
Outside of China the reaction to weak prices has been limited.
There has been some portfolio rationalization by the likes of Xstrata, which closed its Cosmos mine in Australia, Vale, which shuttered its Frood mine in Canada and BHP Billiton, which has been trimming costs at its Australian operations.
Any actual impact on production from such book-tidying, however, has been overshadowed by a couple of largely unexpected developments.
Loma de Niquel, the Venezuelan ferronickel producer owned by Anglo-American, closed in September as a long-running dispute over the company's mining concessions comes to a head.
Anglo has warned that unless a deal can be reached before Nov. 10, when its last three concessions expire, "there will be no further production contribution from this operation." If that turns out to be the case, it will remove around 17,000 tons of annual capacity from the market, a larger hit on supply than any of the cost-related cuts so far announced.
Another surprise has come in the form of Vale's problems with its Onca Puma project.
Since this uses conventional ferronickel production technology, it wasn't expected to be particularly problematic. Nor did it appear to suffer any undue commissioning issues when it came on stream in 2011, generating 7,000 tons of new production.
However, a furnace problem in the second quarter saw Onca Puma shut down completely over the third quarter, a major unexpected setback for an operation with a nameplate capacity of 55,000 tons per year.
Vale in its Q3 production report said that "the return to activity will not take place in 4Q12 and as yet is not scheduled." Less surprising is the fact that Vale is still struggling with its Goro nickel project in New Caledonia.
Many years behind schedule, Goro has become totemic of the problems associated with the HPAL technology.
Goro produced nothing at all in Q3 after a problem with the acid plant led the company to declare force majeure back in May.
Vale seems to be coming to the end of its patience with Goro, chief financial officer Luciano Siani seemingly setting a 2013 deadline for making it work.
Minority partners Sumitomo and Mitsui have already reduced their participation in the project.
But Goro is turning out to be the exception rather than the rule when it comes to HPAL projects.
Consider, for example, Ravensthorpe in Australia, abandoned by BHP Billiton because of cost overruns and technical problems and picked up by First Quantum Minerals.
Ravensthorpe produced 6,200 tons of nickel in hydroxide in the third quarter, First Quantum reporting "steady state operation of the complete circuit." Or the Ambatovy project in Madagascar, similar to Goro in following an ambitious straight-to-metal production route.
It produced its first nickel in the third quarter, a total 2,370 tons, including test briquettes. There are still evidently start-up hiccoughs but no more than might be expected of any new project and operator Sherritt International is still forecasting commercial production to be reached early next year.
Similarly with the Ramu project in Papua New Guinea, minority partner Highlands Pacific reporting production of 2,655 tons of nickel contained since operational start-up.
Ramu is right now operating at around one third of design capacity of 31,000 tons and gearing up for commissioning the third and final part of the plant in the current quarter.
It's still early days and, as Vale could attest, that means there is still plenty of potential for more operational setbacks.
But the relative smooth start-up of the other HPAL projects is leading most analysts to view the technology as site specific in terms of successful operation.
An upside surprise to compensate for the downside surprises sprung by Anglo's Loma de Niquel and Vale's Onca Puma.
In a fast evolving nickel supply picture, though, it's what's happening in Indonesia that could turn out to have the most far-reaching market consequences.
The first nickel pig iron producer has just opened up for business.
Indoferro will likely be the first of several as the Indonesian government forces operators downstream into value-added production through a combination of an outright ban on exports of nickel ore and higher taxation for approved shippers.
In the past Indonesian nickel ore shipments largely went to feed China's sprawling NPI sector and there is no shortage of Chinese companies registering interest in constructing smelters in the country.
As the NPI sector starts to off-shore in Indonesia, however, it opens up the possibility of what was previously a Chinese production stream becoming a new source of global nickel raw materials.
Indoferro's business development manager Jonatan Handojo, said the company is lining up customers for its product in Taiwan, India, South Korea and even Europe.
If others follow the same path, Indonesian production will be brought into the global mainstream, adding another layer of complexity to an already complex dynamic of competing nickel raw materials and production cost curves.
-- Andy Home is a Reuters columnist. The opinions expressed are his own
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