While several major new mines will soon start producing nickel, lofty energy costs and electricity shortages could curtail existing production, shielding the market from serious oversupply, analysts say.

BHP Billiton Ltd.'s $2.2-billion Ravensthorpe nickel mine in Western Australia has already begun production but isn't expected to reach its 50,000-tonne-per-year capacity for another couple of years. Meanwhile, in New Caledonia, Vale Inco Ltd.'s $3.2-billion Goro project is slated to start production in December and Xstrata Plc's Koniambo project should see first output in 2011.

With nickel prices crashing to $8.35 a pound Friday from highs just shy of $25 a pound in May last year, the outlook for the new projects doesn't appear nearly as rosy as it did just a year—or even a month—ago. There also are concerns that the nickel price will come under significant further pressure as the new mines come on-stream, especially if global economic growth doesn't recover quickly from the recent slowdown.

For now, producers insist it's full speed ahead.

"We believe the long-term market fundamentals remain strong and we are proceeding with our pipeline of projects, including Goro," a Vale Inco spokesman said.

An Xstrata Nickel spokesman said...