LONDON (Commodity Online): Nickel and aluminium markets have been in surplus for some time on account of production indiscipline, but the forecasted surplus for 2013 may be wiped away on account of potential write downs Rio Tinto and BHP Billiton, according to Barclays Research.

Both Rio Tinto and BHP Billiton have been impacted by high costs and lower prices. In the event of a write down on nickel assets at BHP Billiton, it will wipe out 43 kt of surplus, Barclays said.

Gayle Berly, analyst with Barclays said: “If media speculation about a potential write down at BHP Billiton’s Australian alumina and nickel businesses is true it could put bauxite and alumina capacity at risk (raw materials for aluminium) as well as 56Kt of refined nickel production. If BHPB was to close all of this production, it would wipe out our forecast nickel surplus for this year of 43Kt.“

Rio Tinto’s Production Capacity
Part of the write down on Rio Tinto assets occurred due to failed sale of Pacific Aluminium. The facility processes 1.1 Mt of aluminium. Other Rio smelters at France (350 Ktpy), Sebree Smelter 200 Ktpy (highest cost smelter) are under risk. If all of Rio’s Australasian smelters were shuttered it would make a huge dent to Barclays forecast of 1.8 Mt aluminium surplus this year.

Governments of France and Australia might step in to prevent a crisis. “In sum, while the scale (if any) of production cuts would determine the market and price impact, at the very least the message such cuts would send could help to define the cost support for nickel and aluminium prices,” Gayle Berly said.