Nickel Market Outlook

Transcription

1 29/04/2015 Nickel Market Outlook Mike Baril

2 Disclaimer This presentation may include declarations about Vale s expectations regarding future events or results. All declarations based upon future expectations, rather than historical facts, are subject to various risks and uncertainties. Vale cannot guarantee that such declarations will prove to be correct. These risks and uncertainties include factors related to the following: (a) the countries where Vale operates, mainly Brazil and Canada; (b) the global economy; (c) capital markets; (d) the mining and metals businesses and their dependence upon global industrial production, which is cyclical by nature; and (e) the high degree of global competition in the markets in which Vale operates. To obtain further information on factors that may give rise to results different from those forecast by Vale, please consult the reports filed with the Brazilian Comissão de Valores Mobiliários (CVM), the French Autorité des Marchés Financiers (AMF), the Stock Exchange of Hong Kong Limited, and with the U.S. Securities and Exchange Commission (SEC), including Vale s most recent Annual Report on Form 20F and its reports on Form 6K. The views expressed here contain information that have been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. This presentation should not be relied upon as a recommendation or forecast by Vale.

3 Agenda 1 The situation in Potential future nickel supply 2 Nickel Market Outlook 29/04/2015

4 Today, nickel prices are at an almost 40% discount to long-term expectations % Metal price as % of long-term analyst consensus forecast** Nickel Aluminum* Copper Zinc Gold Platinum Source: World Bank, Bank reports, Vale analysis *Aluminum includes Rotterdam premium ** Analyst consensus forecast in the given month. Consensus forecast includes as many as 20 banks 3 Nickel Market Outlook 29/04/2015

5 Current nickel industry margins are at historic lows reflecting the Chinese credit situation and global macro economic concerns LME Stocks Weeks of Consumption 12 Median producer margins and LME stocks Median Producer Gross Margin (%) Supply from ex. USSR and early 90s recession 08 financial crisis Oversupply of ore from Indonesia Historical average Asian financial crisis Margin as of April Source: LME, Wood Mackenzie Nickel Market Outlook 29/04/2015

6 From what was an underlying deficit, Chinese de-stocking of both ore and refined nickel shifted the world into surplus 2014 market balance kt Ni World (ex. China) demand of 0.9M tonnes implies a 27% surplus of which 150kt went on the LME Balance (excl. Indonesian ore) Arrival of Indonesian ores in Jan/Feb Estimated de-stocking of high grade ores Refined world nickel balance Chinese de-stocking of refined nickel Refined surplus (ex. China) Source: Vale analysis, Wood Mackenzie, CRU, GTIS, Macquarie

7 De-stocking is well advanced which is anticipated to lead to lower NPI production and higher imports of refined nickel into China China In-Country Ore Inventory Million, wmt Dec Jan Feb Source: Neiba Mar Apr May 26 Jun 25 Jul 25 Aug Sep Oct Nov Low Grade High-Medium Grade Dec Jan Feb 12 7 Mar High- and medium-grade ore inventories have fallen below 10M tonnes, less available ore is expected to lead to lower NPI production in 2015 The Qingdao scandal in 2014 along with tight Chinese credit triggered the de-stocking of historical surpluses Decrease in NPI inventories over the past 12 months Drawdown in refined nickel inventories with 103kt of exports in 2014 As de-stocking ends, imports into China are anticipated to increase

8 The situation for Chinese stainless has been challenging, production expected to improve as the year progresses USD/t 1,300 1,200 1,100 1, Implied stainless steel margin* (3 month trailing average) Chinese stainless under pressure: Stainless mill profitability under pressure Tight credit, increasing environmental regulations, and European antidumping duties add to challenges Macro-economic concerns kt Mar- 11 Jul- 11 Jan- 12 Jul- 12 Jan- 13 Jul- 13 Jan- 14 Chinese austentic stainless production Jul- 14 Jan- 15 As stainless de-stocking comes to an end, stainless production anticipated to improve as year progresses: March 2015 production improved from February lows Actions being taken to stabilize and stimulate economic growth * Stainless price minus contained nickel and chrome value (assumes the cheaper of LME or NPI) Source: CRU, Vale analysis

9 At current prices, Chinese stainless mills are shifting their demand to imported nickel in coming months USD/t Ni 5,000 RKEF NPI margin* (based on 10-15% NPI sell price) USD/ mt 1,000 SHFE vs. LME price 4, ,000 2, ,000 0 At LME price -500 Anticipated to lead to increasing imports in coming months -1,000-1,000-2, At 12,500/t LME ,500 May 2014 Jul Sep Nov Jan 2015 Mar * Assumes efficient operation

10 With marginal consumption growth and declining NPI, a significant pickup in Chinese net imports of nickel is anticipated for 2015 kt 1,200 Estimated Chinese Nickel Consumption kt 500 Chinese net nickel imports (imports exports) 1,000 Assumed 3-5% consumption growth From nickel stocks and/or net imports Chinese Production (excl. NPI) Chinese NPI production 400 Net imports Assumes no destocking or restocking for the year +298% Share of world consumption 2015f % 52% YTD 2015F

11 2015 market update Nickel margins are at historical lows. A key influence has been Chinese de-stocking of refined nickel and ore Adjusting for Indonesian ore, the nickel market was actually in a structural deficit in 2014 With falling NPI production, the nickel market is anticipated to shift into a small deficit for 2015 Nickel imports into China are picking-up and at current estimates are expected to show a sizeable year-overyear increase in Nickel Market Outlook 29/04/2015

12 Potential future nickel supply

13 With 80% of global undeveloped resources, laterites will play a significant role in future supply World nickel production and undeveloped resource 10% 16% 20% 41% 64% 1.71% 1.77% 1.31% 29% Global nickel mine production 17% 4% Undeveloped Resources* (outside existing mining camps) Source: Vale analysis * Excludes projects under development 12 Nickel Market Outlook 29/04/2015 Low Grade Sulphide Limonite Saprolite High Grade Sulphides

14 The Philippines will struggle to offset Indonesia as a source of nickel ore exports Nickel contained in Indonesian and Filipino laterite resource 13 Source: Vale analysis Nickel Market Outlook 29/04/2015

15 Unlikely that future supply will reverse the trend of declining grades % Ni Saprolite Ore Grades (direct shipping) New Caledonia (exports to Japan) CAGR (%) Philippines (exports to Japan*) % ( 04-14) -4.1% ( 09-13) % Ni Average annual sulphide head grade Sulphide Head Grade Forecast Source: DIMENC, Nickel Asia Corp, Wood Mackenzie, Vale analysis * Represents Nickel Asia exports Nickel Market Outlook 29/04/ % ( 93-14)

16 Sulphide discoveries have tended to be lower grade and/or much smaller in recent years Discovery of Key Sulphide Deposits Source: Vale analysis 15 Nickel Market Outlook 29/04/2015

17 While the market remains pessimistic, there are areas of optimism for potential future demand Still room for increased nickel consumption in end use as wealth in China grows while there are segments that will see weakness, there are other areas of potential nickel growth Actual end use intensity* 2013 World Nickel End Use kg Ni/person China EU/US/Japan Automotive Aerospace Other Transport Appliances Electronics Energy 7% 4% 5% 6% 6% 6% 1.0 Chemical, Petrochemical 8% Other Engineering 14% Building & Construction 11% 0.5 Cutlery/Kitchen 11% Intermediate Products Others 18% 4% Source: Pariser, Vale analysis * Total nickel consumption (primary + scrap) adjusted for net trade in intermediates and final products Source: Pariser, Vale analysis

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