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Vale Update on Nickel Business in 2019

Metal News - Published on Wed, 26 Feb 2020

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LME nickel prices averaged 2019 at US$ 13,936/t, 6% stronger compared to US$ 13,122/t in 2018. Total exchange inventories (LME and SHFE) had a net decline, closing at 190.5 kt by the end of 2019, down 28.4 kt since 2018. LME inventories at the end of 2019 stood at 153.3 kt, a decline of 53.1 kt since the end of 2018. SHFE inventories increased 24.7 kt to 37.1 kt by the end of 2019. Global stainless-steel production increased 3.3% in 2019 relative to 2018 with strong growth led by Indonesia, India and China. This mismatch of stainless production and stainless consumption is resulting in surplus and is evidenced by the record high reported stainless inventories, particularly in China. Sales of electric vehicles worldwide grew 12% in 11M19 relative to 11M18 amid a continued decline in overall automotive sales. Demand for nickel in other applications is mixed, with aerospace supporting increased growth in super alloy applications and the poor results for the automotive market negatively impacting plating applications. Nickel supply increased approximately 8% in 2019 relative to 2018, with Class II production growing 15% whereas Class I production increased 1% during this period.

The Indonesian export ore ban, which was fast tracked and has taken effect in the beginning of 2020, two years earlier than previously indicated, contributed significantly to recent price gains. Chinese NPI (nickel pig iron) production, which relies heavily on Indonesian ore imports, will be negatively impacted in the long-term. However, in the near-term, alternative sources of ore could soften the impact, such as, current Chinese ore stockpiles (visible and invisible), the additional Indonesian quotas for the current year (which are permitted for export) and the potential export increases from the Philippines, New Caledonia and Guatemala. Further to the supply developments, an important consideration for all commodities is the impact of the overarching macroeconomic factors such as the coronavirus outbreak, the ongoing trade dispute between China and the US and a slowing global economy, which influences sentiment, demand and, therefore, prices. The physical market reflects a slowing growth environment. Due to these factors, our near-term view on nickel is subdued.

Our long-term outlook for nickel is positive. Nickel in electric vehicle batteries will become an increasingly important source of demand growth particularly as battery chemistry favors higher nickel content due to lower cost and higher energy density against the backdrop of robust demand growth in other nickel applications. Additionally, we see price support from recent announcements of increasing HPAL costs in Indonesia. HPAL projects are more complex than originally envisioned and this has the potential to increase the financial burden on nickel producers to meet the growing battery demand. While the Indonesian export ore ban will limit Chinese NPI in the longer term, the ban has incentivized domestic nickel RKEF and HPAL developments within the country. As a result, several projects and expansions have been announced, and in some cases, construction at current developments is ahead of schedule.

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Posted By : Nishith Sharma on Wed, 26 Feb 2020
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