Jan. 20 (Bloomberg) -- Cia. Vale do Rio Doce, the world’s second-biggest nickel miner, may announce further cuts to its Canadian nickel operations to contend with falling demand and to pressure workers in contract negotiations, analysts said.

Vale is set to start talks with its Sudbury, Ontario, workers in April, before a planned maintenance shutdown in May. Analysts including Raymond Goldie at Salman Partners Inc. said Vale may seek to extend the shutdown to cut inventories while rescinding some worker perks. The company, based in Rio de Janeiro, announced last month a suspension of some Canadian nickel output because of falling demand amid the global slowdown.

Nickel supply has outpaced demand every month since February 2007, when the market had a deficit of 4,600 metric tons, data from Lisbon-based Nickel Study Group shows. The metal used to make stainless steel dropped 56 percent last year on the London Metal Exchange. Vale’s Sudbury operations account for 9.4 percent of global output of finished nickel, Goldie said.

“The end-use for nickel -- stainless steel -- is very, very weak, and an extended shutdown or extended maintenance period wouldn’t be surprising,” Tony Robson, an analyst at Toronto-based BMO Capital Markets, said in an interview. Vale’s Sudbury operations, comprising mines, a concentrator and a smelter, would likely be closed for two or three months if the company opts for an extended shutdown, Robson said.

Cory McPhee, a Vale spokesman, declined to comment.

Copper Cliff

The company said in December it would halt output at its Copper Cliff South mine, which produces 8,000 tons of nickel a year in the Sudbury area, for an “indeterminate period” starting in January.

Vale fell 1.09 reais, or 4.1 percent, to 25.30 reais in Sao Paulo trading. The shares plunged 53 percent last year. Nickel for delivery in three months on the LME rose $250 a ton, or 2.2 percent, to $11,550 today.

Negotiations to replace the labor contract expiring on May 31 are set to begin early in April with about 3,500 workers represented by the United Steelworkers union, the USW said. The talks will be the first since the company acquired the nickel assets through its $16.7 billion takeover of Inco Ltd. in 2006.

‘Hard Bargaining’

“Everything we got in our contract has been through hard bargaining and I don’t expect this time to be any different,” John Fera, USW Local 6500 president, said in an interview. “We also have this world crisis that is sitting in our backyard. That’s a global problem, not a Sudbury problem, so we’ll be bargaining in our usual manner.”

The current contract awards bonuses based on profitability of the company’s Sudbury unit and the price of nickel, which surged to a record high in May 2007. Those bonuses pushed compensation for some miners to as much as C$200,000 ($158,000) in that year, Goldie said.

“Everybody is speculating because Vale isn’t telling us what they really want to do,” David Robinson, an economics professor at Laurentian University in Sudbury, said in an interview. “If I were the company, I would plan to extend the maintenance shutdown a bit just to put a bit of pressure on the union.”

“A lot depends on what you think is going to happen by October or early next year,” said Robinson, who has done research on mining economies. “If you think prices are flat, you don’t really want a stockpile.”

Sudbury Output

Vale produced 28 percent, or 56,400 tons, of its global finished nickel in Sudbury in the first nine months of 2008, according to an Oct. 23 production report.

Work at Vale’s Voisey’s Bay nickel operation in the Canadian province of Newfoundland and Labrador will be stopped during July, the company said last month. That unit includes the Ovoid mine and a processing plant, which produces nickel and copper as a byproduct.

Vale’s operations may be halted if conditions don’t improve, Sudbury Mayor John Rodriguez said in an interview.

“We can’t think that we can go through this for another year without being affected,” he said.

Xstrata Shutdown

Xstrata Plc, the second-largest nickel producer in Sudbury, announced on Nov. 13 it would shut operations earlier than expected at its Craig and Thayer-Lindsley mines in the central Ontario city, leading to the loss of 250 jobs. Xstrata, based in Zug, Switzerland, acquired its Sudbury operations when it purchased Canada’s Falconbridge Ltd. in 2006 for $16.2 billion.

Nucor Corp., the largest U.S. steelmaker, and some of its competitors have announced capacity shutdowns and job cuts in the past two months to cope with declining demand from automakers and builders caused by the global economic slump.

Steel consumption in the U.S. may fall as much as 25 percent in the first half, Timna Tanners, a UBS analyst in New York, wrote in a Jan. 6 note to clients. U.S. steel demand fell about 16 percent to an estimated 104 million metric tons last year from 120.5 million in 2007, Purchasing magazine, an industry publication, said Dec. 30.

Vale’s Sudbury unit also produces copper as a byproduct of its nickel ore. Copper output rose 3.9 percent to 87,300 tons in the first nine months of 2008 from a year earlier, Vale said in a production report.

OAO GMK Norilsk Nickel was the largest nickel refiner by output in 2007, according to London-based metals consulting company CRU.

To contact the reporter on this story: Rob Delaney in Toronto at robdelaney@bloomberg.net.