angela durrant - wood mackenzie - nickel: the only way is up – but when?
TRANSCRIPT
Nickel : The only way is up
– but when?
CHINA NICKEL Shanghai, May 24-25
2016
Angela Durrant – Senior Cost Analyst
50 Pitt St, Sydney, NSW, 2000
+61 2 8224 8807
Trusted commercial intelligence www.woodmac.com
Trusted commercial intelligence www.woodmac.com
2
Agenda
1. Why are nickel prices so low?
2. What will prevent price upswing?
3. Why have we not had more closures in such a price environment?
4. Is the future bright? Outlook for supply/demand and prices
Trusted commercial intelligence www.woodmac.com
3
The problem with nickel – fundamentally - oversupply since 2008
Cumulative surplus of ~950kt has seen prices move lower and lower
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Pri
ce
($
/lb
)
Ba
lan
ce
(k
t)
Balance Price
Source: Wood Mackenzie
World nickel supply-demand balance and price
GFC
closures
New projects
ramp up
Trusted commercial intelligence www.woodmac.com
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Pri
ce
($
/lb
)
Ba
lan
ce
(k
t)
Balance Price
Source: Wood Mackenzie
World nickel supply-demand balance and price outlook
The good news is the market is moving into deficit
Largely due to declining output of Chinese NPI
Trusted commercial intelligence www.woodmac.com
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Pri
ce
($
/lb
)
Ba
lan
ce
(k
t)
Balance Price
Source: Wood Mackenzie
World nickel supply-demand balance and price outlook
The bad news is that we see no improvement in prices this year
And no substantial price rally until 2019-2020!
Trusted commercial intelligence www.woodmac.com
6
Agenda
1. Why are nickel prices so low?
2. What will prevent price upswing?
3. Why have we not had more closures in such a price environment?
4. Is the future bright? Outlook for supply/demand and prices
Trusted commercial intelligence www.woodmac.com
7
Stock overhang preventing any upswing in prices
Need more than 6 months to draw down
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250
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Pri
ce
($
/lb
)
Ba
lan
ce
(k
t)
Stock days Balance Price
Source: Wood Mackenzie
World nickel supply-demand balance, price and stocks outlook
Stock days = 267
@ end 2015
Trusted commercial intelligence www.woodmac.com
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High stocks levels keeping sentiment low
LME stocks no longer a key indicator for demand
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25000
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b-1
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r-1
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g-1
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p-1
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n-1
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b-1
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r-1
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n-1
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g-1
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p-1
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v-1
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b-1
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Ni
pri
ce
(U
S$
/t)
Es
tim
ate
d n
ick
el s
toc
ks
(k
t)
LME China Singapore Malaysia SHFE Ni Price
Source: Wood Mackenzie
Global nickel stocks, Excl RoW producer/consumer stocks; Malaysia and Singapore (off-exchange)
China de-stocking
Trusted commercial intelligence www.woodmac.com
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Chinese nickel stocks increase to represent > 6 months demand At the same time Chinese stainless demand had softened
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Sto
ck
ch
an
ge (
kt)
Ap
pa
ren
t a
nd
re
al d
em
an
d (
kt)
Stock Change
Apparent Demand
Real demand
Source: Wood Mackenzie
Calculated nickel stocks at end-2015 China – building nickel stocks since Q2/15
LME 37%
SHFE 5%
China off-ex 18%
Malaysia off-ex
4%
Producers (INSG)
7%
Consumers ex-China
(est) 12%
Other Unidentified
17%
Trusted commercial intelligence www.woodmac.com
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Short term demand outlook - not strong enough to make an impact
on stocks
China no longer the demand powerhouse it once was
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-10%
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An
nu
al g
row
th
China World RoW
Source: Wood Mackenzie
Historic and forecast growth in global nickel demand
+60kt Ni demand
over next 5yrs
Trusted commercial intelligence www.woodmac.com
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Agenda
1. Why are prices so low today?
2. What will prevent price upswing?
3. Why have we not had more closures in such a price environment?
4. Is the future bright? Outlook for supply/demand and prices
Trusted commercial intelligence www.woodmac.com
12
2015 was not as bad as it seemed
Only 20% of the industry was loss making at the annual average nickel
price of US$5.37/lb
2015 cost curve: Upper 20% of the cost curve was loss-making
-5.0
0.0
5.0
10.0
Co
st ($
/lb
Ni)
Cumulative Production (Paid kt Ni)
Source Wood Mackenzie
~20% loss making
Trusted commercial intelligence www.woodmac.com
13
Nickel industry costs chased down prices in 2015
Aided by FX, Oil and Nickel prices
C1 cost vs price analysis Average C1 direct cash cost
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5
10
15
20
25
Co
st
($/l
b N
i)
Ninth decile Upper quartile Median
Lower quartile LME Price
Source: Wood Mackenzie & LME
Only in Q4 2015 did
Ni prices cut
heavily into the
cost curve 3.46
4.57 -0.35
0.38 -0.65
-0.21 0.17 3.91
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5.50
$/lb
Nic
kel
Source: Wood Mackenzie
Trusted commercial intelligence www.woodmac.com
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2016 is another story – around 60% of the industry making a loss at
$4.00/lb
Production cuts have come but more are needed
2016 cost curve: 60% of production potentially loss-making on current forecasts
Source: Wood Mackenzie
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Cumulative Production (kt)
US
$/l
b ~60% loss making
Trusted commercial intelligence www.woodmac.com
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Production cuts – who has gone so far?
Small sulphide miners closing while refiners “adjust” to lower feed
availability, refined output net loss of 100kt for 2016
Source: Wood Mackenzie
Ni in ore/concentrate cuts due to low prices Main cuts in refined Ni to date
2014 2015 2016 2017
Lockerby 5 4
Lanfranchi 12 5
Savannah 8 10 1
Long 10 9 9 9
Mincor 8 5
Santa Rita 12 15 4
Niquelandia 29 25 12
KGHM 4 2 2
Total 88 75 28 9
Net loss 0 -14 -60 -79
Source: Wood Mackenzie
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2014 2015 2016 2017
Pro
du
cti
on
(k
t)
Net loss Jinchuan
Ferronikeli Feni
Sandouville Loma de Niquel
Yabulu Tocantins - Sao Miguel
Trusted commercial intelligence www.woodmac.com
16
Agenda
1. How did nickel get into such dire straits?
2. What will prevent price upswing?
3. Why have we not had more closures in such a price environment?
4. Is the future bright? Outlook for supply/demand and prices
Trusted commercial intelligence www.woodmac.com
17
We will need more nickel (in the long-term!)
Plenty of probable projects waiting in the wings, predominantly in
Indonesia, but the west will need to provide nickel too
Nickel market supply demand outlook
Source : Wood Mackenzie
0
500
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2500
1990
1995
2000
2005
2010
2015
2020
2025
2030
kt
Existing supply
Probable projects
ConsumptionMarket requires
+390kt Ni by 2030
to be balanced
Trusted commercial intelligence www.woodmac.com
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Indonesian NPI capacity build slow – hindered by economic
environment
But no need for these nickel units just yet
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Ni
in F
eN
i (N
PI)
ca
pa
cit
y (k
t/a
)
Indoferro
CIMM
Tsingshan Bintang Delapan (incl. exp)
PT PAM Metalindo
PT Bintang Smelter Indonesia
Fajar Bhakti/Gebe Sentra/Zhenshi
PT KKU/Hanking
PT Macika Mineral/Ningbo Brillimetal
PT Artabumi Sentra Industri/QEE
PT Sambas/Dongtai Yongli
PT Titan/Shenwu
PT Duta Nikel/Huadi
PT Central Omega/Yusco/Macrolink
PT Bosowa Metal Industri
PT Megah / Harita
Source : Wood Mackenzie
Existing and Potential Indonesian NPI capacity
Producing: Indoferro, CMMI ,Tsingshan
Expanding: Tsingshan
Small Producers: BSI, Metalindo, Fajar
Bhakti
Trusted commercial intelligence www.woodmac.com
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Prices need to rise to promote long term investment in nickel
Long term incentive price of $9.00/lb, but short term action needed
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Pri
ce
($
/lb
)
Ba
lan
ce
(k
t)
Stock days Balance Price
Source: Wood Mackenzie
World supply-demand balance, price and stocks outlook
Trusted commercial intelligence www.woodmac.com
20
Summary
Nickel market suffering from a legacy of oversupply
Stock overhang keeping sentiment/prices low
Demand also weak in China and globally, up only 1.8% in 2016
Prices not low enough for long enough
Nickel industry costs actually chased down prices
Some closures since late 2015 and more possible before end 2016
260kt of ‘new’ Ni could come from Chinese investment in Indonesian NPI, or new innovation
Balance to come from the “west” – long-term incentive price of $9.00/lb
New project development essential
Around 390kt Ni required to achieve ‘balance’ by 2030
BUT nothing really needed before 2020
Trusted commercial intelligence www.woodmac.com
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Angela Durrant
Angela Durrant joined Wood Mackenzie in 2012 and has spent the last four years covering nickel
and zinc industry costs. She is based in the company’s Sydney office.
Angela has over 15 years of experience in both research and operational roles. Prior to joining
Wood Mackenzie she worked at CRU as a Senior Consultant in the Special Steels and Alloys
Team. Angela also worked for the Australian Mining company, Pasminco Ltd, as a Project
Metallurgist at the company’s Century Zinc mine, as well as its Broken Hill, Cobar and Rosebery
operations.
Angela graduated from Murdoch University in Perth with a degree in Science (Extractive
Metallurgy), and also holds a degree in Economics from Flinders University in Adelaide.
Senior Cost Analyst, Nickel and Zinc Costs
T +61 2 8224 8807
Trusted commercial intelligence www.woodmac.com
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Disclaimer
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