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Norilsk says will take years to deplete nickel stocks, boost prices

A man sits in the reception room of the office of Norilsk Nickel company in Moscow, January 28, 2013. REUTERS/Sergei Karpukhin

By Josephine Mason

NEW YORK (Reuters) - Nickel prices are unlikely to recover for another two years as producers struggle with "unprecedented" low prices and a 100,000-tonne surplus, an executive at Russia's Norilsk Nickel (MCX:GMKN) said on Monday.

One-third of global output, about 600,000 tonnes, is unprofitable at current prices, which have been hammered by weak demand and big inventories, particularly in China, head of strategic marketing Anton Berlin said in a telephone interview.

London Metal Exchange prices have slumped almost a fifth since the start of the year and are languishing at four-year lows below $14,000 (8,700 pounds) per tonne.

His comments come days after Glencore Xstrata (LSE:GLEN) announced it will suspend operations at its Falcondo nickel mine in the Dominican Republic, one of the first casualties of weak prices and poor demand.

"We would be the last man standing," said Berlin. "If the market stays similar, I assume others would follow Falcondo."

Speaking after he briefed investors on the company's five-year, $2 billion cost-cutting strategy to battle weak nickel prices, Berlin played down the possibility that Norilsk, the world's No. 1 producer, will follow suit in the immediate term.

With some of the world's largest nickel-copper-palladium deposits in Russia's far north, Norilsk, part-owned by tycoon Vladimir Potanin and aluminium producer Rusal <0486.HK>, says it is the world's lowest cost nickel producer.

Even with cutbacks, Berlin warned, it will take several years to work through record high stocks in LME-registered warehouses and China's growing inventory of nickel pig iron (NPI), a low-cost alternative raw material for making stainless steel.

"It will be 2015 when we expect some improvement. By 2015, we'll see a more reasonable price," he said.

On October 4,, LME stocks stood at 227,562 tonnes, or about 12 percent of annual global output.

Another major uncertainty next year will be the ban on ore exports in Indonesia, which is a major supplier of low-cost raw material to China, he said.

(Reporting by Josephine Mason; Editing by Steve Orlofsky)