Professionals Fyson & Associates
96 Brookman Street Kalgoorlie
08 9080 9200
08 9021 5187Contact us
As the 2016-17 financial year draws to a close, it is timely to take stock of what has been achieved in the region and what the new financial year may have in store.
The languishing nickel price continues to frustrate as it hovers around US$4 a pound, particularly as all the components for an improvement are in place. These can be summarised as:
• Steady improvement in the global economy and the transition of the Chinese economy from infrastructure development to consumer led economic growth, which augers well for nickel. All are users of steel products which contain nickel so increasing global demand should follow.
• The rapid development of solar generated power for automotive as well as residential and commercial building power use has led to the development of batteries to either power the vehicles or provide a backup/reserve power supply for buildings when the sun is not contributing. Battery technology has moved ahead in leaps and bounds with the result that companies like Tesla have invested heavily in new production facilities with their Gigafactory in Nevada. The Europeans and Asian nations are developing their technologies at the same time and all use lithium ion, which needs nickel in each battery, so the nickel industry will be the winner. How long the increasing consumption will take to make serious inroads into the global stockpiles is uncertain but they are edging down.
• Wind power is also used extensively around the world for feeding into the grid. There is increasing talk of building battery farms to store power to feed back in when there is little wind, these will also increase the demand for nickel. So we think the prognosis for nickel is pretty healthy, just a bit slow in coming to fruition!!
There have been encouraging signs of a return in confidence generally, the share market has seen successful capital raisings, exploration budgets have been approved and drilling rigs have been out in the bush for the last year or so.
The gold price has been in the AUS $1650-$1720 range for some time and with most companies reporting all in costs of $800 – $1000 per oz there is a healthy margin assisting the development of new operations.
This has all contributed to a recovery in employment as the drilling industry is a big employer and vacancy rates have halved over the last two years. There is still some way to go before we see a recovery in rental returns but we have been preparing for this by inserting six monthly rent reviews into residential leases ready for when there is a market improvement.
So what does 2017-18 have in store for us?
It appears that there is a widely held view in the industry that nickel is on the road to recovery, evidenced by BHP committing capital and a restructure to Nickel West with the appointment of an Asset President Nickel West. Anecdotally it seems that Nickel West operations across the State have taken on a new and much more positive outlook since this appointment which is great news for the region as it’s a vital part of our local economy.
As the nickel price recovers we will see moth balled mines brought back on stream, the timing though is uncertain. The latest nickel price has reached the US$4.20 a Lb but it has dipped below US$4 three times in the last 30 days. Has it reached the bottom? Stock piles on the LME have also been dropping but are still 15,000 tons above the lowest level reached during the last 12 months. The changes in policy in Indonesia and the Philippines are not helping the price nor supply stability!!
Our expectations for the expansion of our economic region to include the Pilbara look to be on shaky ground as the new State Government is reviewing the $60 million from Royalties for Regions committed by the last Government. We are actively lobbying the Government not to renege on this funding but time will tell. You may wish to add your voice to the call to confirm this funding ASAP!!
In summary, all the pieces of the jigsaw puzzle are on the table but we have little control as to how and when they are put together. I am confident that we are through the worst of this sustained down turn, evidenced by a noticeable increase in new commercial industrial enquiry, so hopefully as the year progresses we shall have more positive than negative news on which to report.
Regards and best wishes for the new financial year.