NOUMEA -- The chief executive of French mining group Eramet (IW 1000/813) has blamed oversupply in the world nickel market for steep losses at a subsidiary as China ramps up its own production, with little end in sight.
Patrick Buffet said the global overcapacity was causing Societe Le Nickel (SLN), the group's nickel subsidiary in New Caledonia, to rack up monthly losses of 2.5 billion French Pacific francs (US$27 million).
"The crisis in the nickel (market) is very, very intense and nobody expected it to reach such a level," Buffet told reporters in Noumea on Thursday after a board meeting of SLN, the largest private employer on New Caledonia's main island of Grande Terre.
The French Pacific territory is home to a quarter of the world's reserves of nickel, a key ingredient in the manufacture of stainless steel, rechargeable batteries and coins.
Buffet's warning came after parent group Eramet last month posted a 5% drop in third-quarter sales to 754 million euros (US$1 billion), mainly because of slumping nickel prices.
He said "alarming" levels of overcapacity stemmed from a steep rise in production from major consumer China, which in less than 10 years has spurred its output of the metal from zero to 450,000 tons a year, after importing cut-price ore from Indonesia.
High levels of mineral stocks on the London Metal Exchange have pushed down prices to "extraordinarily low levels" of between $6 and $6.5 per pound, well below the company's cost of production, Buffet said.
SLN plans to reduce spending and rein in investments, and has not ruled out job losses, he said, recapping a similar warning from Eramet's earnings announcement last month.
Buffet said he foresaw the coming years as being "extremely painful" for the market, with no improvement in sight for at least two years.
The slump in commodity prices threatens to hurt New Caledonia's economy, which is dominated by the nickel industry, and meanwhile accusations of environmental blight have reared anew this week.
Brazilian company Vale said Friday that it was suspending production at a nickel processing plant until at least the end of December, after a pipe carrying chemical waste through a pristine lagoon sprang a leak.
The mining firm's local subsidiary Vale Nouvelle-Caledonie said a buildup of air had caused the rupture in the pipe, which is connected to its giant Grand Sud plant, and said detection instruments had failed to sound the alarm.
Vale NC said repairs were underway but insisted the incident had caused "no environmental impact."
However, campaigners lashed out at the company and at authorities. "How is it possible that the mines regulator approved this equipment? We're aghast," said Martine Cornaille, head of the ecological group EPLP.
Copyright Agence France-Presse, 2013