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Nickel plated

As Iwrite, Thursday, July 14, French troops are on the march. Fortunately, they arenot heading for the British Channel; rather, they are stomping down theChamps-Élysées in Paris. This is Bastille Day — called La Fête Nationale inFrance — which commemorates the beginning of the French Revolution with thestorming of the Bastille prison on July 14, 1789.

Thecelebration has been held on this morning in Paris each year since 1880, almostwithout exception, making it the oldest regular military parade in the world.

BastilleDay celebrations are also being held in Noumea, the capital of France'soverseas territory of New Caledonia. In the Melanesia region of the southwestPacific, and comprising dozens of islands, New Caledonia is known for itspalm-lined beaches, marine life-rich lagoons and for nickel. Following along-awaited price improvement, the latter is giving the French another reasonto celebrate this week.

Nickelmining is a major part of the New Caledonian economy, accounting for over 7% ofthe country's GDP and as much as 80% of its foreign earnings. The countrycontains an estimated 10% of the world's nickel reserves, and New Caledonia iscurrently the world's fifth-largest producer, with mined output of some 46,000tonnes in the June quarter. The country has the longest history of mining inthe Pacific islands, with nickel having been found in 1864.

Theuse of nickel as a natural meteoric nickel-iron alloy has been traced as farback as 3,500 BCE, but the roots of its current use are barely 260 years old,when an unknown red mineral that resembled copper ore was uncovered in the OreMountains, called Erzgebirge in German, near the modern German-Czech border.When miners were unable to extract any copper, they blamed a mischievous spriteof German mythology, Nickel, and called the ore kupfernickel, now known asniccolite, a nickel arsenide.

In1751, Axel Fredrik Cronstedt tried to extract copper from kupfernickel at acobalt mine in the Swedish village of Los but instead produced a white metalthat he named after the spirit that had given its name to the mineral. Thefirst industrial-scale smelting of nickel began in Norway in 1848 fromnickel-rich pyrrhotite.

Theintroduction of nickel in steel production in 1889 increased demand for themetal, and New Caledonia provided most of the world's nickel supply between1875 and 1915. The discovery of large deposits in Canada's Sudbury Basin in1883, in Russia's Norilsk-Talnakh in 1920 and in South Africa's Merensky Reefin 1924 made large-scale production of nickel possible elsewhere.

Becausenickel oxidizes slowly at room temperature, it is corrosion-resistant andhistorically has been used for plating iron and brass, coating chemistryequipment and manufacturing certain alloys that retain a high, silvery polish.Nickel has been widely used in coins, but is now most valuable in alloys; abouttwo-thirds of world production is used in stainless steel.

Thepast five years have been difficult for the nickel market, with the pricefalling from a peak of almost US$30,000 per tonne in early 2011 to a low ofclose to US$13,000 per tonne in 2013. After a recovery to over US$21,000 pertonne in May 2014, the price more than halved in a two-year period, bottomingat just under US$7,600 per tonne in February this year.  

Fortunatelyfor New Caledonia, the price of nickel has rallied over the past five months toa nine-month high this week of over US$10,000 per tonne, amid expectations ofsupply cuts in the Philippines, which is the world's largest producer of nickelore with some 135,000 tonnes of contained metal in the June quarter. Thecountry's new government has said that mines falling short of environmental andwelfare standards will be shuttered, and it has ordered an audit of operations.Two nickel operations in Zambales, operated by Benguet Corp. and ZambalesDiversified Metals Corp., have already been suspended for "various allegedenvironmental crimes, violations of the mining and environmental laws, andcomplaints of various groups against the alleged environmental impacts."

Theprice increase is auspicious for the launch this week by SNL Metals &Mining of its monthly . EditorLouise Gammon is bullish on nickel prices over the next 18 months, forecastingthat the three-month price on the London Metal Exchange will average US$9,058per tonne this year and US$11,450 per tonne in 2017.

SNLexpects accelerating cuts in production, coupled with improving demand, to pushthe global nickel market into a deficit of 73,000 tonnes this year, deepeningto a shortfall of 145,000 tonnes in 2017. Gammon says this will cut totalstocks to 18 weeks of average consumption, compared to 24 weeks at the end of2015. Nickel is not yet storming the price gates, but the scenario isoptimistic enough to bring producers on to the streets with the French.