Big Australian nickel smelter unsafe and shuts for repair. Nickel price soars.

BHP Billiton’s big Kalgoorlie nickel refinery has been becoming unsafe to run and is being shut for rebuild for four months causing world nickel prices to move sharply upwards.

SYDNEY (Reuters)  - 

Global miner BHP Billiton Ltd <BHP.AX> <BLT.L> has closed a nickel refinery in Western Australia for about four months while it rebuilds a smelter furnace, cutting sales by about 28,000 tonnes and sending the price of the metal soaring.

BHP said on Thursday it had to bring forward a planned rebuilding of the furnace at its Kalgoorlie nickel smelter by nearly a year because it had become unsafe to run. The closure would halt production at its Kwinana refinery and cut global supply by almost 2 percent.

It estimated the shutdown of Kwinana would cut nickel sales by 25,000 tonnes in its financial year to June 2009, and by 3,000 tonnes for the current year to end-June. Total sales in the year to June 2007 were about 101,000 tonnes.

Its shares fell 4.4 percent to a two-month low, while nickel prices <MNI3=LX> jumped $625, or 2.7 percent, to a high of $23,825 a tonne.

"This will be very significant. We will lose 25,000 tonnes of metal because of the shutdown. We already estimate the refined nickel market will be in deficit by 80,000 tonnes this year, and this will just deepen the shortfall," a trader in Sydney said.

"It's time to forget about the stainless steel glut and falling demand. We could see nickel $1,000 a tonne higher by this evening. In fact I wouldn't be selling nickel anywhere below $25,000, I'd buy."

Nickel prices have seen a deep decline in 2008, down more than 10 percent from the start of year as stainless steelmakers, which consume around two-thirds of the world's nickel, scaled back purchases in light of slowing demand for their products.

The news is the latest to impact on Australia's key minerals industry after a gas explosion in Western Australia state earlier this month cut supplies to miners, disrupting production at several mines.

The Kalgoorlie smelter produces around 100,000 tonnes of nickel-in-matte a year, which is fed into the Kwinana nickel refinery and also exported to other customers.

BHP said it was trying to continue concentrate production in Western Australia.

A fund manager speculated the rebuild had to be brought forward because it had been run hard while nickel prices were high.

"This is what happens when demand is strong," said Peter Chilton, an analyst at Constellation Capital Management.

The rebuild has freed up gas supply for BHP's Worsley Alumina refinery, which was one of the mining operations hit by a power shortfall following the explosion at a gas plant operated by Apache Energy <APA.N> on Varanus Island off Western Australia.

The blast cut about a third of gas supplies to Australia's biggest mining state, and Apache expects it will take at least two months to restore partial supplies.

BHP shares touched a low of A$41.53 and were down 3.6 percent at A$41.90 at 0147 GMT.

Independence Group <IGO.AX>, which supplies nickel ore to BHP, said it is trying to get more information from BHP and may put out an announcement later on Thursday.

Mincor Resources <MCR.AX>, another supplier to BHP, said BHP had told there would be no impact on Mincor. (Additional reporting by Ben Wilson and Nick Trevethan in Singapore; Editing by Jonathan Standing and Michael Urquhart)

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