• by: Sarah-Jane Tasker
• From: The Australian
• February 25, 2013 11:00PM

• THE majority of Australia's nickel producers continue to struggle to turn a healthy profit, and analysts say there is little relief in sight unless there is a fundamental change, such as BHP Billiton closing its West Australian operations.

While BHP has no plans to close its Kambalda nickel west operations, market observers say it would take that level of industry event to provide any relief to the sector this year.

"BHP doesn't have to run loss-making operations," one respected mining analyst said.

"They are a 100,000-tonne producer, so it's a big change for the nickel market if its operations are put on care and maintenance. That would materially change the outlook for the nickel market and could aid the juniors."

BHP reported last week that underlying earnings before interest and taxes for its aluminium and nickel division had fallen $US219 million ($213m) to a loss of $US285m for the first half.

Western Areas, Australia's lowest cost producer, reported on Friday a sharp fall in its first-half profit on the weaker nickel price and on the back of a non-cash impairment charge.

The company said cashflow from operations was significantly affected by a lower nickel price.

"With even Western Areas struggling to make money at currently depressed prices, capitulation in the sector appears necessary," said Troy Irvin, an analyst at Argonaut Securities.

Dan Lougher, managing director of Western Areas, told The Australian that consolidation in the nickel industry was a potential driver in 2013.

"This won't just be nickel though. Other base metals may come into play, particularly copper," Mr Lougher said.

"If this occurs, Western Areas is well positioned to participate in a disciplined manner."

Mr Lougher said there was a looming supply gap of quality sulphide nickel in 2013-14 that would support the market.

"The Indonesian export ban will start to bite and a number of very large, long-term mines will come to the end of their life," he said. "There has also been a number of mine closures during the last 12 months. This is going to produce a global shortfall of good-quality product."

Patersons Securities senior resources analyst Simon Tonkin said it was clearly a tough environment for the nickel market. Mr Tonkin said a sign of the times was the fact that most nickel players were now diversifying into other commodities.

"Nickel is a leading industrial commodity . . . at the moment things are looking a little shaky and in the last couple of weeks the price is down 7 per cent," Mr Tonkin said.

"At these levels, some are making money, but others are marginal or just breaking even."

http://www.couriermail.com.au/news/big-change-needed-to-save-nickel-producers/story-e6freon6-1226585433117