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Norilsk Nickel production update

Metal News - Published on Fri, 09 Mar 2018

Image Source: SteelGuru
Price recovered in 2H on the back of strong global stainless and alloys demand; electric vehicles-related battery story contributed to the positive sentiment; a reduction of Class 1 nickel output from sulphide deposits was offset positively by the booming nickel pig iron production in Indonesia and recovery in Chinese output; combined LME and SHFE inventories were albeit down 55 thousand tonne YoY, but remained high at approximately 70 days of global consumption at the year end 2017.

After a weak performance in H1 of 2017 driven by the removal of ore export ban in Indonesia and de facto cancellation of the suspension orders (result of a prior environmental audit) issued to nickel mines in Philippines, nickel price recovered strongly from USD 9,000 per tonne in the end of June to USD 12,750 per tonne by the end of December. This price performance was driven by a combination of macro and industry specific factors. On the one hand, the weakening US Dollar and improving sentiment towards global economic growth were supportive for all commodities prices. On the other hand, growing investors’ interest towards nickel as one of the key raw materials for the prospective battery sector combined with a strong demand from stainless steel industry and moderate supply growth resulted in a sizeable nickel market deficit of 105 thousand tonnes.

In 2017, the average LME nickel price increased 8% YoY to USD 10,411 per tonne.

Global nickel consumption in 2017 increased 5% YoY. While the growth rates of Chinese stainless demand were moderating in 2017 to 3% YoY from a very strong 10% growth in 2016, the nickel consumption in stainless steel in the rest of Asia increased over 27% YoY, propelled by the ramp-up of Indonesian STS mills, with the Americas’ demand also strong, up 7% YoY owing to the output increase by largest US mills. European stainless demand was practically unchanged. Nickel demand in the battery sector expanded by a very impressive 29% to exceed 100 thousand tonnes on the back of a 40% rise in the battery electric vehicles and plug-in hybrid vehicles global production volumes. The battery sector demand for nickel however remained a small fraction of global demand, accounting for just under 5%.

Global nickel supply in 2017 increased 2% YoY, mainly in the form of Class-2 nickel products produced from laterite ores. In 2017, Indonesia doubled its NPI production to over 170 thousand tonne of nickel units, while also resuming the export of unprocessed ore, which amounted to 4 million tonnes (approximately 40 thousand tonnes of nickel units) and were mainly destined to China. Ore supply from the Philippines were also recovering due to the policy change as the nickel mines, suspended as a result of 2016 environmental audit, were allowed to resume their operations. At the same time, production of Class-1 (high-grade) nickel decreased by approximately 60 thousand tonnes in 2017 , which was a result of the years of underinvestment into sulphide mines owing to weak nickel pricing environment, with additional production cuts related to the reconfiguration of nickel processing plants in Russia and Canada. Cathode nickel (a Class-1 product) suffered major production losses being down almost 150 thousand tonnes in the last two years. Therefore, while combined LME and SHFE exchange inventories decreased just over 10% or 55 thousand tonnes in 2017, the exchange stocks of full-plate cathodes were down almost 50% or 110 thousand tonnes. Since the full-plate cathodes are the preferred Class-1 nickel product for both the financial speculators and Chinese industrial consumers the tightening market balance of this specific product drove up its premiums to record high levels of up to USD 300 per tonne (as published by price reporting agencies).

Nickel outlook
Neutral short-term, positive medium-term; in spite of anticipated solid demand growth rates in 2018 we expect nickel market deficit to reduce to 15 thousand tonnes from 105 thousand tonnes in 2017 owing to ramp-up of NPI production in Indonesia and recovery of ore export volumes from Indonesia and the Philippines; battery sector remains a highly prospective, but still a relatively marginal driver of global nickel demand; we expect it to become a material consumer of nickel possibly from 2020s onwards subject to the EV penetration growth; in the medium term, we see tightening Class 1 nickel market balance, thus commanding a premium over Class 2 products and potential nickel market bifurcation.

In 2018, we anticipate economic growth in all key regions, which should be supportive of solid nickel demand. Primary nickel demand is expected to increase 6% YoY on the back of strong stainless steel output in China and continuing ramp-up of stainless production in Indonesia. We forecast another strong year in the demand in batteries as well as nickel alloys, with the latter being driven by expansion in aerospace and oil and gas sectors.

However, the ongoing ramp up of NPI capacities in Indonesia (which are expected to add 76 thousand tonnes in 2018) and the strong outlook for the export of ore from the country as export quotas are now exceeding 30 million wet tonne (over 300 thousand tonnes of nickel units) are likely to result in an accelerated growth of supply, thus reducing substantially the major apparent market deficit of 2017. Upside risks to our nickel market base case forecasts in 2018 are related to weather conditions, which may impede shipments of ore from the Philippines and Indonesia to China, and potential regulatory action in the Philippines, where the government may yet again adjust its policy towards the mining sector.

In the long run, we see very good prospects for the battery sector becoming the main driver of global nickel consumption. The forthcoming shift in favour of more nickel-intensive technologies in battery cathode material alongside the growing share of electric vehicles in the global cars’ production should drive up strongly the demand for Class 1 nickel products towards 2025. By this year, we forecast that an incremental annual increase in nickel uptake from batteries could exceed 500 thousand tonnes (which equals almost half of the current consumption of Class 1 nickel). Until then the price recovery will be subject to the drawdown of nickel exchange inventories, which remains at 70 days of global consumption. In addition, we see major potential for further substitution of Class 1 nickel products in STS with Class 2, thus making the former available to cover any incremental demand coming from the battery and other sectors.

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Posted By : Rabi Wangkhem on Fri, 09 Mar 2018
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