The history and future of Inco Ltd. C collide on a windswept field by the Yellow Sea, on the northeast edge of China.
Inco's history rolls in on big container trucks carrying orange-and-white bags of nickel pellets, mined and processed in Sudbury, the 102-year-old company's traditional production base.
The future is what happens inside Inco's sprawling new factory in Dalian, a port city of six million. In the spare, immaculate plant, those pellets end up in big electroplating vats, where the metal is melded with polyurethane foam to form nickel foam, a critical element in today's rechargeable batteries.
Inco is using Chinese labour and technology to feed a surging new market, and to form a global supply loop that, for Canadians, is both innovative and sadly familiar: Nickel mined in Canada is undergoing value-added transformation in China, only to return to Canada, eventually, inside the batteries of energy-efficient Japanese hybrid cars, such as the Toyota Prius.
It's becoming a common theme in business: Entire supply chains are picking up and moving to China, and not just in labour-intensive industries like apparel and toy making, but in technologically advanced sectors like autos and electronics.
For Inco, the Dalian venture also speaks to its evolution into something more than just an efficient miner. Sure, it continues to seek out low-cost nickel deposits, whether at home in Canada the oncoming Voisey's Bay project in Labrador, for example in the South Pacific, or, it hopes, in China.
But it also regards itself as a global marketer, plugged into major customers, and nimble enough to move downstream to capture value. The world's No. 2 nickel supplier feeds more than 10 per cent of its tonnage into production of specialty materials, such as nickel battery components and other auto parts. That's a much smaller but more profitable business than digging the stuff out of the ground.
"You don't be the leader by being all about ore bodies and low cost you do it by finding new products," says Scott Hand, the company's chairman and chief executive officer. "You don't stay competitive by just selling nickel on the LME [London Metal Exchange]."
And for companies like Inco, you don't stay competitive without going to China.
Inco says it has to locate in China because its customers and competitors are there, or they're a short hop across the sea in Japan.
"You have to do [the manufacturing] where the market is," says Peter Goudie, executive vice-president for marketing and the driving force behind the 10-year thrust into China. "The battery market is in Asia, and increasingly in China.
"A large part of it is about presence. You want to be identified as a local supplier to local companies."
Mr. Goudie insists labour costs are a secondary factor, although they are a crucial part of the Chinese value equation. Total compensation for an operator in the Dalian plant is $200 (U.S.) a month, roughly what the average Sudbury worker makes in 10 hours.
More important is the size and promise of the Chinese market. More than 10 per cent of Inco's $4-billion in annual sales now comes from China, which is about to pass Japan as the world's largest nickel consumer.
Two-thirds of the world's nickel goes into making stainless steel, and China accounts for 20 per cent of global stainless steel demand, more than Japan and the United States combined. Soaring steel production is one of the fundamental underpinnings of China's growth strategy, and its appetite helped push the nickel price to a 15-year high early this year, although it's retreated recently as China has tried to moderate its heated economy.
As China seeks to secure supplies of such vital materials, the global mining industry is caught up in powerful crosscurrents. Inco is pushing harder into China as an explorer and processor, while Chinese firms are moving in the other direction. Control of Inco's Canadian rival Falconbridge Ltd. C seems likely to end up with China Minmetals Corp., C a state-owned company fulfilling Beijing's mandate to nail down strategic supplies.