Nickel: The necessity of higher prices. Robert Cartman Hatch Beddows

Transcription

1 Nickel: The necessity of higher prices Robert Cartman Hatch Beddows

2 Contents Hatch and Hatch Beddows Short-term Ni prices Long-term Ni prices Conclusions 2

3 HATCH Hatch services and sectors S E R V I C E S SECTORS Hatch Associates Limited, 29

4 HATCH Global reach and resources 8 people 34 Canada Calgary, Alberta Hamilton, Ontario Montreal, Quebec Sorel-Tracy, Quebec Sudbury, Ontario Mississauga, Ontario Niagara Falls, Ontario Vancouver, British Columbia USA Boston, Massachusetts Buffalo, New York Millburn, New Jersey Monroeville, Pennsylvania New York, New York Pittsburgh, Pennsylvania Pleasanton, California San Francisco, California Seattle, Washington South America Antofagasta, Chile Santiago, Chile Lima, Peru São Paulo, Brazil Belo Horizonte, Brazil Vitoria, Brazil 7 Europe London, England Moscow, Russia 17 South Africa Johannesburg Richards Bay 6 (Yellow indicates regional hub) India Delhi China Beijing Shanghai 12 Australia Brisbane Gladstone Mackay Melbourne Newcastle 23 Perth Sydney Townsville Whyalla Wollongong Hatch Associates Limited, 29

5 Hatch counts many of the world s major mining and steelmaking companies and financial institutions among its core client base Mining Alcan Alcoa Anglo American Assmang BHP Billiton De Beers ENRC Falconbridge Impala Platinum Lonmin Newmont Mining Norilsk Placer Dome QIT Rio Tinto SUAL Vale Inco Xstrata Steel ArcelorMittal BlueScope Steel Celsa CMC Tata/Corus Group Evraz Group Gerdau Group Mechel Metalloinvest Metinvest Nucor POSCO Ruukki Severstal Shougang TMK U.S. Steel voestalpine Financial institutions ADB Bank of America Bear Stearns CIBC Citibank Commonwealth Bank Credit Lyonnais CSFB Deutsche Bank EBRD HSBC IFC JP Morgan Chase Mellon Bank NM Rothschild & Sons RBS UBS Warburg World Bank 5

6 Contents Hatch and Hatch Beddows Short-term Ni prices Long-term Ni prices Conclusions 6

7 The LME Ni price has shown great volatility in the last 5 years, driven by a number of key factors LME Ni price ($/tonne) Drivers of short-term Ni price 6, 5, Supply / Demand balance Stockpiles, strikes, natural disasters Stainless production, financial crises / recession 4, 3, Expectations Alloy surcharge mechanism Speculation 2, Dollar weakness 1, Against Ni-producing countries Input costs Aug 4 Feb 5 Aug 5 Feb 6 Aug 6 Feb 7 Aug 7 Feb 8 Aug 8 Feb 9 Aug 9 Oil price, sulphuric acid Source: MB, Hatch Beddows 7

8 Ni supply has moved in line with prices. Cutbacks in 28 reflect the fact that prices moved below marginal cost for some producers kt 1,6 Global nickel mine production (contained Ni) $ / tonne 4 Key nickel cutbacks 28 / 29 Xstrata Falcondo operations in Dominican Republic suspended indefinitely (29kt) 1,2 3 Mine closures in Canada (17kt) BHP Billiton Closure of Ravensthorpe, now up for sale (14kt) 8 2 Vale Onca Puma project repeatedly suspended (58kt) Global mine cutbacks (9kt) 4 1 Norilsk Suspension of Australian operations (47kt) Antam Cutback of Indonesian operations (7kt) Russia C anada Australia Indonesia New C aledoni a Others Source: INSG, MB, Hatch Beddows 8

9 Despite some cutbacks, Ni oversupply will act as a drag on upward movements in the Ni price in the short term 125 LME Ni stocks (kt) $ / tonne 6 Ni stocks vs. LME Ni price No. weeks consumption Source: MB, LME, INSG, Hatch Beddows 9

10 Ni demand is dominated by stainless steel production. This has fallen since a 26 peak of 28.4Mt Ni demand by end-use Global stainless steel production Plating 12% Foundry 3% Other 6% Stainless steel 57% kt 3, 25, 2, 15, 1, Non-ferrous 14% 5, Alloy steel 8% Europe China Other Asi a America s Africa Source: ISSF, Hatch Beddows 1

11 The production of Ni-containing grades of stainless steel has fallen even faster than overall stainless steel production Mt Global stainless steel production by series (24-9) f Other Index of Cr and Ni prices (Q1 21 = 1) Q1 21 Q3 23 Q1 26 Q3 28 Cr Ni Source: ISSF, MB, Hatch Beddows 11

12 The supply / demand balance for nickel has an effect on nickel prices, although 27 shows that other factors matter Supply / Demand balance for finished Ni LME Ni price ($/tonne) kt 12 6, 1 8 5, 6 4, 4 2 3, 2, , Aug 4 Feb 5 Aug 5 Feb 6 Aug 6 Feb 7 Aug 7 Feb 8 Aug 8 Feb 9 Aug 9 Source: Hatch Beddows 12

13 The previous alloy surcharge mechanism of stainless steel producers helped to create a speculative cycle Previous alloy surcharge mechanism Mar 6 = $14,893/t Apr 6 = $17,932/t Effect of previous alloy surcharge mechanism LME Ni price rises sharply May 6 = $21,65/t Jun 6 = $2,747/t Jun 6 surcharge Increase in demand for LME Ni Buyers expect future price rises Jul 6 = $26,569/t Jul 6 surcharge Buyers bring forward purchases Aug 6 = $32,748/t Source: LME, Hatch Beddows 13

14 The weakening of the US dollar has helped to drive the Ni price higher 14 Indexed dollar value vs. LME Ni price $ / tonne 6 Effect of $ weakness on Ni prices Priced in dollars 12 Aug 4 = 1 5 No US production of Ni Ni Production in non-$ countries 1 4 Ni Production in countries with floating FX rate Dollar weakness Falling revenues for Ni producers Need to increase $ price of Ni to compensate 4 2 Conclusion 2 1 Visible correlation, r = -.6 Large movements driven more by short-term market conditions Aug 4 Jan 5 Jun 5 Nov 5 Apr 6 Sep 6 Mar 7 Aug 7 Jan 8 Jun 8 Nov 8 Apr 9 Sep 9 $ / RUB $ / CAD LME Ni (RHS) Source: Oanda, Hatch Beddows 14

15 As a major component of production costs, the rise in oil prices over recent years has also fed through to Ni prices 1% Ni mining and processing costs, 29 $/bbl 16 Ni and oil price $ / tonne 6 8% % % 6 2 2% % Russia Australia Canada Indonesia China NPI* Fuel Maintenance / Overhead s Source: Company reports, EIA, Hatch Beddows * via EAF Labour Raw materials 15 Jan 1 Mar 3 May 5 Jul 7 Sep 9 Oil Ni

16 Nickel prices have been influenced by a range of factors over the last 5 years LME Ni price ($/tonne) 6, 5, Supply / Demand Input costs Dollar weakness Speculation Supply / Demand Input costs Dollar weakness 4, 3, 2, 1, Aug 4 Oct 4 Dec 4 Feb 5 Apr 5 Jun 5 Aug 5 Oct 5 Dec 5 Feb 6 Apr 6 Jun 6 Aug 6 Oct 6 Dec 6 Feb 7 Apr 7 Jun 7 Aug 7 Oct 7 Dec 7 Feb 8 Apr 8 Jun 8 Aug 8 Oct 8 Dec 8 Feb 9 Apr 9 Jun 9 Aug 9 Source: Hatch Beddows 16

17 Contents Hatch and Hatch Beddows Short-term Ni prices Long-term Ni prices Conclusions 17

18 Long-term Ni prices have averaged just under $14,/tonne in real terms (28 $) Long-term Ni prices ($/tonne) Drivers of long-term Ni price 4, 3, Nominal Real (28 prices) Supply / Demand Long-term stainless production Long-term Ni availability, investment vs. exploitation 2, Long-term real average Supplier / Consumer power balance Consolidation in Ni, stainless industries Backward / Forward integration 1, Source: USGS, LME, Hatch Beddows Technology Reduction in marginal costs of mining, processing Greater accessibility of ores Processing of by-products Substitution Non-nickel stainless, Li-ion batteries

19 Long-term stainless steel production has risen at a CAGR of 4.5% since 1965 kt 3, Stainless steel production Mt 3 Stainless steel production by series, , 25 2, 2 15, 15 1, 1 5, Other Source: Vale, ISSF, Hatch Beddows 19

20 Stainless steel production is forecast to continue rising in order to meet the expected growth in consumption by the developing world 5 Per capita consumption of stainless steel vs income per capita for selected countries, Taiwan Kg per capita 3 2 South Korea Japan 1 China Malaysia $ per capita, 28 (PPP) Source: Vale, IMF, Hatch Beddows 2

21 Long-term stainless steel production will move toward 4Mt by 22. Further substitution is possible but most of this has already taken place kt 4, 35, Stainless steel production Percentage point shift from 3-series Appliances & Catering Industrial applications ABC Tubemaking Transport -1% 1-5% 3, % 25, 2, % 1-15% C hange Potential future change 15, 8% 3-series ratio 1, 5, Source: ISSF, Hatch Beddows % 4% % 3-series 22

22 Long-term Ni supply fluctuates between waves of investment, followed by exploitation Mt 2. Investment phase Ni production, mined Investment phase Investment phase $ / tonne 4 Long-term real Ni prices (28 $) Investment phase Investment phase Investment phase Source: INSG, USGS, LME, Hatch Beddows 22

23 The next wave of investment could add another ~5kt of capacity Ore type Capacity Ambatovy Barro Alto Eagle (?) Fenix (?) Gladstone (?) Goro Koniambo Nonoc (?) Nunavik Onca Puma Ramu Shevchenko Tagaung Taung Vermelho (?) Weda Bay (?) Laterite Laterite Sulphide Laterite Laterite Laterite Laterite Laterite Sulphide Laterite Laterite Laterite Laterite Laterite Laterite 6kt 36kt 1kt (?) 23kt 63kt 6kt 6kt 4kt (?) 12kt 52kt 31kt 22kt 23kt 46kt 6kt Source: Company reports, Hatch Beddows 23

24 A small nickel supply deficit is expected for 29 and 21 before a return to surplus Supply and demand of finished Ni Supply / Demand balance for finished Ni kt 1,5 forecasts kt 12 forecasts 1 1, , ,2 1, , Supply Demand Source: Hatch Beddows 24

25 Nickel is increasingly being extracted from lateritic ores Nickel production by ore type Nickel resources by ore type 1% 8% Sulphides 27% 6% 4% 2% Laterites 73% % Source: Hatch Beddows Sulphides Laterites Sulphides Lateri tes

26 Laterite resources are mainly found in countries that require large spending on infrastructure Source: Hatch Beddows 26

27 Lateritic ores need to be subdivided into limonites or saprolites in order to understand the respective mining and processing costs % content Depth Ni Co Fe MgO Oxides High Fe, low MgO, low SiO 2 Limonite Processing Dependent on presence of clay minerals. Typically hydrometallurgy (HPAL, Heap, Caron) 5.5m Transition zone Silicates 1m Saprolite Low Fe, high MgO, high SiO 2 Processing Pyrometallurgy. End product (FeNi, matte) dependent on mineralogy Bedrock Source: Mick Elias, Hatch Beddows 27

28 Summary of nickel ores and their pros and cons Nickel ore Sulphides Laterites Limonites Saprolites High mining costs Underground mining Low mining costs Surface mining Low mining costs Surface mining Low processing costs Proven technology Often associated with valuable by-products (Cu / Pd / Pt) High processing costs Unproven technology Protracted startup Expensive materials of construction High acid consumption Falling processing costs Proven technology Large-scale operations Vulnerable to energy costs Slag disposal Source: Hatch Beddows 28

29 Mining and processing costs will depend on a variety of factors. It is too simplistic to categorise as laterites vs. sulphites Resource Higher grade = better >1.5% saprolite Saprolite = proven processing technology Larger size = better Lower capex per tonne Ore mineralogy Inputs Merchant vs. captive Hydroelectricity vs. fossil fuels Hydrocarbons Labour availability / skills Project management Project phasing Project team continuity New technologies Infrastructure Power / Acid / Lime plants Content of clay minerals Lower = better Magnesium content Lower = less acid consumption in hydrometallurgy SiO 2 / MgO ratio Impacts on choice of end-product Transportation Road / Sea / Air Conveyors / Pipelines Difficulty of terrain / climate Accommodation Permits / Compensation Source: Hatch Beddows 29

30 Contents Hatch and Hatch Beddows Short-term Ni prices Long-term Ni prices Conclusions 3

31 Conclusions Short-term Higher Ni prices through 21, falling thereafter Supply deficits for 29 / 21 Stainless production to begin rebound in 21 New supplies to arrive, mainly from 211 Long-term Rise in real prices but will it be temporary? Greater importance of laterites Rise in production costs Need for technological developments in processing limonites 31

32 Your contacts for further information Hatch Beddows Strategy Consulting 9 Floor, Portland House, Bressenden Place, London SW1E 5BH (switchboard) Robert Cartman Senior Consulting Analyst Fax Mobile rcartman@hatch-europe.com Hatch Beddows is a member of the HATCH GROUP of companies 32