NICKEL MARKET PERSPECTIVES September 23 rd, 214 Metal Bulletin Conference, Jakarta ALLOYS, ORES & PEOPLE DES ALLIAGES, DES MINERAIS ET DES HOMMES.
NICKEL MARKET PERSPECTIVES SEPTEMBER 214 ERAMET IN A FEW WORDS 2
A DIVERSIFIED MINING AND METALLURGICAL GROUP WITH WORLD LEADING POSITIONS French mining and metallurgical group active through 3 business divisions ERAMET Manganese: #2 high-grade manganese ore worldwide #1 refined manganese alloys producer worldwide ERAMET Nickel: #1 ferronickel producer worldwide in 214 ERAMET Alloys: #2 closed-die forging parts producer worldwide Key financials (213) Sales: c. 3.2bn EBITDA: 231m (7% margin) Net debt: (218)m Sales breakdown by division (213) ERAMET Nickel 22% ERAMET Alloys 29% ERAMET Manganese 49% Listed on Euronext Paris, with a market capitalization of c. 1.9 bnas of end 213 Note 1 Fonds Stratégique d Investissements (French sovereign fund) 3
INDUSTRIAL SITES OF NICKEL DIVISION Sandouville (refinery) Paris FRANCE Grenoble (Eurotungstène) Poum Tiebagi Etoile du Nord Népoui-Kopéto NEW CALEDONIA Tontouta SLN nickel mines Metallurgical plant Doniambo Poro Kouaoua Thio PT WedaBayNickel Halmahera (Indonesia) Project: mine/nickel plant INDONESIA 4
STRATEGIC PROJECT - WEDA BAY NICKEL Strategic project both for ERAMET and Indonesia For ERAMET Group WBN site Aerial view Market share Hydro-metallurgical process Strategic partnership with Japanese players : Mitsubishi Corp and Pamco Local partner: PT Antam An experience, which will be useful for hydro developments at SLN Test pit Handling and transportation test of ore For the Indonesian government Halmahera island, North Maluku Project of the Master Plan «MP3EI» Perspectives of local economic benefits ERAMET Group acquired the WedaBay Nickel project in 26 5
NICKEL MARKET PERSPECTIVES SEPTEMBER 214 NICKEL PRICE & INVENTORIES 6
NICKEL PRICE RECOVERY InventoriesontheLMEhaveincreasedby4ktsincemid-June(65ktsincebeginningof214),mainlyduetoChina destocking to Asian LME warehouses, following the Government crackdown on commodity financing scams. Despite this massive inventory surge, LME prices have shown rather strong resistance, indicating investors anticipation of a tightening nickel market. LME nickel settlement (in USD/tonne) and LME nickel stocks (in tonnes) USD / tonne 3 27 24 21 18 15 12 9 6 3 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-13 Feb-13 Mar-13 Apr-14 May-14 Jun-14 July-14 Aug-14 tonnes 36 33 3 27 24 21 18 15 12 9 6 3 Nov. 8, 211 Low of 83 kt +246 kt Aug 28, 214 High of 329 kt 7
NICKEL OUTLOOK SEPTEMBER 214 SOLID GROWTH FOR STAINLESS STEEL WORLDWIDE 8
STAINLESS STEEL PRODUCTION: NOT ONLY ABOUT CHINA In 214, stainless steel production should register a new record high of 41.5 million tons(+3.7 MT; +9.7%). China remains the main contributor to the increase with +2.7 MT(7% of the increase). Forthefirsttimesince21,otherareas,inparticular EuropeandtheUS,aretaking partintheincrease. We are a bit more conservative for the second half 214, since we believe that some restocking took place during thenickelpricerallyinthefirsthalfoftheyear. 28,1 Annual stainless steel production World, in million tonnes 26, 25, 3,9 33,2 35,3 37,8 41,5 27 28 29 21 211 212 213 214 +.5% -7.4% -3.8% +23.5% +7.5% +6.4% +6.9% +9.7% 6 5 4 3 2 1-1 -2-3 -4 Incremental stainless steel production in million tonnes Rest of World China World 27 28 29 21 211 212 213 214 9
STAINLESS STEEL IN CHINA ChinabrokeanotherrecordinH1214with1.6MTofStainless Steelproduction(+19%vs.H1213 or+1.7mt). Production cuts remain limited so far for 214. In the same period, STS exports grew from 1.1 MT in H1 213 to 1.8 MT in H1 214, meaning that 4% of the STS production growth in China has been fueled by exports. We estimate that most of the Chinese exports are 3 series. Exportdestination ranking: 1-Taiwan(3%)2 Korea(2%)3-SEA(19%) 4-Europe(14%). Weexpectexportsto slowdowninh2 214onthebackoflesspricecompetitivenessforChineseSTSandseasonal adjustment in Q3. RealconsumptionforSTSinChinaremainsonasteadytrendwith+8%estimatedfor214. Chinese stainless steel production - in million tonnes 214 imports: 214 real consumption 15.2 Mt (+8% yoy) 214 exports 3.4 Mt (+5% yoy) 3.8 3.9 4.1 4.3 4.4 4.5 4.7 5.1 5.1 5.5 5.4 5.5.9 Mt (+11% yoy) Q1 Q2 Q3 Q4 212: 16.1 Mt +17.3% Q1 Q2 Q3 Q4 213: 18.8 Mt +16.1% Q1 Q2 Q3 Q4 214: 21.5 Mt +14.5% Stainless steel real consumption in finished production 1
NICKEL MARKET PERSPECTIVES SEPTEMBER 214 RECORD NICKEL CONSUMPTION 11
ROBUST GROWTH FOR 3 SERIES WORLDWIDE 3 series production increase should represent close to 7% of the total STS production increase in 214(2.5 MT outofthe3.7mtincrease). Production of 3 series outside China will grow by about 7 kt, representing about 3% of the growth volume. The nickel price rally in the first half of 214 has contributed to the end of a 4 years streak of STS declining prices for 3 series. Stainless steel production by grade in thousand tonnes 214 incremental production by grade in thousand tonnes 45, 4, 35, 3, 25, 2, 15, 1, 5, 14% 61% 25% 2 3 4 14% 59% 27% 16% 58% 26% 18% 57% 25% 19% 56% 25% 29 21 211 212 213 19% 57% 25% 214 24 2 16 12 8 4 +6 kt Ni RoW China +28 kt Ni RoW China RoW China 2 series 3 series 4 series 12
SUSTAINED LEVELS OF DEMAND FOR TOTAL PRIMARY NICKEL In214,realconsumptionofprimarynickelshouldregisteranewincreaseofcloseto+6%(+138ktvs.213). 1% growth for primary nickel consumption in Stainless Steel in 214(+117 kt vs. 213). We retained a conservative 3% growth for nickel consumption in non-stainless applications (+19 kt vs. 213). Real demand for primary nickel, in thousand tonnes +138 14 12 1 Stainless Non stainless 1 4 1 321 1 268 1 262 1 48 1 578 1 674 1 77 1 98 8 6 4 2 26 27 28 29 21 211 212 213 214 26 27 28 29 21 211 212 213 214 13
INCREASE IN CONSUMPTION NOT ALL ABOUT CHINA IN 214 China still represents 7% of the demand for primary nickel in 214, but is no longer the sole contributor to the increase in nickel consumption. 1,2 1,1 1, 9 8 7 6 5 4 3 Real consumption of primary nickel by region, in thousand tonnes China Rest of World 26 27 28 29 21 211 212 213 214 Incremental consumption year-on-year, in thousand tonnes 11-13 China 13 83 Rest of World 14-11 42 94 211 212 213 214 +98 211kt +96 212kt 213 +93 kt +136 214kt 14
NICKEL MARKET PERSPECTIVES SEPTEMBER 214 A HALT TO NICKEL SUPPLY GROWTH 15
A HALT TO NICKEL SUPPLY GROWTH In 214, with the help from the Indonesian export ban, primary nickel supply could register its first decrease in 4 yearswithatotallossofproductionof-24kt(-1.2%vs.213). The increased output from new projects should compensate only partially for a combined loss of production of-77kt from Chinese NPI producers and other producers. Primary nickel supply, in kt Increase in primary nickel supply, in kt 2 18 16 14 12 New projects NPI China Traditional production 1 351 1 433 1 376 1 314 1 434 1 68 1 764 1 942 1 919 +68 New projects NPI Traditional production +174 +178 +156 +12 +82 1 8 6 4 2-56 -63-24 26 27 28 29 21 211 212 213 214 26 27 28 29 21 211 212 213 214 16
PRODUCTION SLOWDOWN TO ACCELERATE IN H2 214 Theslowdown inrefinednickel production shouldbemostacuteinthe laterpartoftheyear, as NPIoutputshall continue to reduce progressively. Thesecondhalf214shouldregistera3.7%dropinproductionagainst thefirsthalf(-36kt). Primary nickel supply, in thousand tonnes 512 384 395 383 46 424 442 429 439 453 478 469 483 492 486 477 465 319 337 317 341 337 352 36 Q1 Q2 Q3 Q4 29 29: 1314 kt -4.6% Q1 Q2 Q3 Q4 21 21: 1434 kt +9.1% Q1 Q2 Q3 Q4 211 211: 168 kt +12.2% Q1 Q2 Q3 Q4 212 212: 1765 kt +9.7% Q1 Q2 Q3 Q4 213 213: 1942 kt +1.1% Q1 Q2 Q3 Q4 214 214: 1919 kt -1.2% 17
REFINED NICKEL PRODUCTION BY TYPE In214,mostofthelossofproductionwillbeundertheformofNPI(-22kt). Almost no increase of Ferronickel supply in 214(+6 kt). World refined nickel production by type, in thousand tonnes Briquettes FeNi NPI Ni metal Others (Utility, Compacts, Sinter, Salts) 25 2 15 199 1% 23 11% 1 5-5 -1 738 38% 453 24% 326 17% -15 29 21 211 212 213 214 28 29 21 211 212 213-63 kt +12 kt +174 kt +156 kt +178 kt -23.7kt -4.6% +9.1% +12.2% +9.7% +1.1% -1.2% 214 refined production 1 919 kt 18
NICKEL MARKET PERSPECTIVES SEPTEMBER 214 CONSTRAINTS ON ORE SUPPLY & NPI PRODUCTION 19
INDONESIAN BAN IMPACT STARTING TO SHOW IN CHINA TRADE STATISTICS NoorecomingoutofIndonesiaaftertheban,butstill1,5Million wmtenteringtochinain214. Increase of Filipino nickel ore imports into China with a growing share of mid-grade volumes(1,5%) Imports of nickel ore in China in million wet metric tonnes Indonesian ore - Mt Philippines ore - Mt 8, 7, 6, 5, 4, 3, 2, 1,, 1 234 21 25 M wmt 5 678 9 1 11 12123 211 48 M wmt 4 567 8 9 1 11 12123 212 64 M wmt 4 567 8 9 1 11 12123 213 71 M wmt 4 567 8 9 1 11 12123 YTD 4 567 Jan Feb Mar Apr May Jun Jul YTD 214 23 M wmt; -24% y-o-y 2
PEAK OF NICKEL ORE STOCKS IN JANUARY BEFORE THE BUFFER DEFLATES At the end of January 214, nickel ore stocks in China reached a high of 29 million wmt, which represented an estimated 7 months of NPI production based on 213 production rate. Over the past 6 months, Indonesian nickel ore inventory has declined by half(down 1 million wmt). Nickel ore stocks in China (ports + inland) usable for the production of NPI in equivalent NPI production (thousand tonnes) +27 kt Peak at 28 Nikt Low grade ore Mid Grade High Grade (Indo) -15 kt 213 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 21
INDONESIAN ORE INVENTORY ON THE WAY TO DEPLETION LookingatIndonesianoreinventories itgives aclearpicturethatchinesenpi makerswillrunoutofhighgradeore (1.8%) at a certain point and will therefore rely on lower grade(1.5%) from the Philippines. The impossibility to mix lower from the Philippines with higher grade Indonesian ore will lift their production costs sharply. Indonesian Nickel ore stocks in China (ports + inland) usable for the production of NPI in equivalent NPI production (thousand tonnes) Peak at 224 Nikt -164 kt 213 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 22
ORE SUPPLY CONSTRAINTS TO PUT A HALT TO CHINESE NPI DEVELOPMENTS Stronger imports from the Philippines during Q2 214 combined with sufficient inventories of Indonesian ore have temporary calmed the panic on ore purchasing experienced beginning of May. NPI plants can currently source sufficient feed and mix it with their Indonesian high grade inventory. Once buffer ore stocks are consumed (or further reduced to a less comfortable level), tension of nickel ore supply will intensify and will translate into subdued NPI production levels. Nickel ore imports in China for the production of NPI in equivalent NPI production, in thousand tonnes NPI production breakdown by type, in thousand tonnes 6 5 4 3 Filipino imports Indonesian imports NPI production Creation of excess ore stocks Absorption of buffer ore stocks NPI BF NPI EAF NPI RKEF 248 353 472 45 2 1 26 85 68 98 158 26 27 28 29 21 211 212 213 214 26 27 28 29 21 211 212 213 214 23
LOSS OF OUTPUT FOR CHINESE NPI OF 5 KT IN H2 214 NPIproductionhasbeenkeptathighlevelduringthefirsthalfof214with25kt. This has been allowed thanks to a relative abundance of inventory of Indonesian ore and rather strong imports from the Philippines. Following the steady erosion of Indonesian high grade ore inventories, we expect NPI production to mark a significant decrease during the second half of 214. Chinese NPI production by quarter, in kt 132 129 12 114 16 12 121 18 81 83 87 93 Q1 Q2 Q3 212: 353 kt +42% Q4 Q1 Q2 Q3 213: 472 kt +34% Q4 Q1 Q2 Q3 214: 45 kt -5% Q4 24
NICKEL ORE PRICE FINDING SUPPORT IN A QUIET MARKET The recent pause of nickel ore price is attributed to a more quiet ore buying activity, generated by lower NPI production and still abundant high grade Indonesian inventories in China. The nickel ore price is finding support for several weeks, meaning that the adjustment has probably been done. With Indonesian inventory going down, we expect the nickel ore price to get firmer in the coming months. FOB price for 1.5% and 1.8% nickel ore in USD/wet metric tonne FOB price for 1.5% and 1.8% nickel ore in USD/wet metric tonne last few weeks 14 12 1 8 6 Ni ore 1.5% FOB price Ni ore 1.8% FOB price 14 12 1 8 6 Ni ore 1.5% FOB price Ni ore 1.8% FOB price 4 4 2 2 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Week 1 Week 11 Week 12 Week 13 Week 14 Week 15 Week 16 Week 17 Week 18 Week 19 Week 2 Week 21 Week 22 Week 23 Week 24 Week 25 Week 26 Week 27 Week 28 Week 29 Week 3 Week 31 Week 32 Week 33 25
NICKEL MARKET PERSPECTIVES SEPTEMBER 214 MARKET MOVING TO DEFICIT 26
STRONG DESTOCKING EFFECT IN H1 214 A heavy destocking from China bonded warehouse to the LME Asian warehouses has given a wrong impression that the market was still in constant oversupply. Looking at real consumption of primary nickel, we can see that the market already turned to a deficit as from Q2 214. Primary nickel demand, in thousand tonnes Distributor and end-user stock variations, in thousand tonnes 5 49 48 47 Real demand Apparent demand Rest of World China Total -1 5 2 2 9 46 45-2 44 43 42-59 41 4 Q1 212 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 213 214 Q4 Q1 214 Q2 Q3 Q4 27
MARKET CLOSER TO BALANCE IN 214 Weexpectthemarkettoturnintodeficitbasedonapparent demandasfromq4214. Thisrepresentsamajorbreakfromthemarketpatternovertheperiodextendingfrommid211toQ3214,when +31ktofexcesssupplybuiltup. Thus,producerandLMEstockscouldregisteranewhighbeforetheystartdeclining inq4214. Nickel supply / apparent demand balance in thousand tonnes Nickel stocks (LME + Ni producer stocks) in weeks of stocks real consumption 6 5 4 3 2 1 Apparent balance Real balance 21 19 43 29 1 2 18 16 14 19,3 18,5-1 -2-3 Q1 11 2 3 4 Q1 211 12 +2 kt 2 3 4 Q1 212 13 +82kt 2 3 4 Q1 213 14 +156 kt -11-8 -19 2 3 4 214 +73 kt 12 1,5 1 8 Q1 11 2 3 4 Q1 12 2 3 4 Q1 13 2 3 4 Q1 14 2 3 4 +3 kt +9 kt +172 kt +11 kt 28
MARKET MOVING TO DEFICIT Our scenario, in which nickel ore availability remains constrained, bodes for a market in heavy deficit in 215 and rapid consumption of producer stocks. Nickel ore inventories in China are expected to be reduced by half at the end of this year (in weeks of consumption). Nickel prices in USD/lb and stocks in weeks of real consumption Weeks of consumption 28 24 2 16 12 8 4 USD / lb 28 24 2 16 12 8 4 1 4 2 3 4 1 5 2 3 4 1 6 2 3 4 1 7 2 3 4 1 8 2 3 4 1 9 2 3 4 1 1 2 3 4 1 11 2 3 4 1 12 2 3 4 1 13 2 3 4 1 14 2 3 4 Producer nickel stocks Nickel ore stocks in China (in equivalent NPI) LME nickel stocks LME average * Q3 214 LME average as of September 3rd, 214: USD 8.54 /lb 29
NICKEL MARKET PERSPECTIVES SEPTEMBER 214 INITIAL HIGHLIGHTS 215 3
CONSERVATIVE APPROACH FOR STAINLESS STEEL PRODUCTION IN 215 Wetakeaconservativeapproachfor215andexpectthestainless steelproductiontogrowbyalimited3%. Weexpect Chinagrowthrateforstainlesssteelproductionto slow downto about4% onthebasisofadecrease of its export competitiveness (linked to the lack of cheaper nickel units like NPI). 26, 25, Annual stainless steel production World, in million tonnes 3,9 33,2 35,3 37,8 41,5 42,7 28 29 21 211 212 213 214 215-7.4% -3.8% +23.5% +7.5% +6.4% +6.9% +9.7% +3.1% 6 5 4 3 2 1-1 -2-3 -4 Incremental stainless steel production in million tonnes Rest of World China World 28 29 21 211 212 213 214 215 31
REAL CONSUMPTION OF PRIMARY NICKEL We retain a conservative 1,8% increase for nickel consumption in 215(+35kt). In this scenario, China nickel consumption growth is slowing down, in line with its stainless steel production. Real consumption of primary nickel by sector of activity, in kt Real consumption of primary nickel by region, in kt 2 18 16 14 12 1 8 6 4 2 1894 1931 1472 157 1665 1758 1391 1317 128 1298 1262 1256 1163 118 125 96 892 792 87 732 499 525 53 512 545 557 595 614 632 449 1 9 8 7 6 5 4 3 2 1 Europe Asia excl. China North America China Rest of World +19 kt +12 kt -.3 kt +6 kt -.2 kt 26 27 28 29 21 211 212 213 214 215 26 27 28 29 21 211 212 213 214 215 Stainless Non stainless Total 32
NICKEL PRODUCTION Thenickelproductionshoulddecreaseforthesecondyearinarow(-3%vs.214) WeforecastChineseNPIproductiontoretrieveto3kt(-15ktvs.214) New projects, including NPI production in Indonesia, shall only compensate partially for the Chinese NPI decrease. 2 18 16 14 12 1 Primary nickel supply, in kt New projects NPI China Traditional production 1351 1433 1434 1376 1314 1 68 1 764 1 942 1 919 1 863 NPI BF NPI EAF NPI RKEF Series4 NPI production breakdown by type, in thousand tonnes 248 353 472 45 3 8 6 4 85 68 98 158 2 26 26 27 28 29 21 211 212 213 214 215 26 27 28 29 21 211 212 213 214 215 33
LEADING TO A STRONG MARKET DEFICIT FOR 215 First estimates show a market deficit of -8 kt for 215 with conservative figures retained for the demand and rather ambitious numbers for new projects on the supply side. LME inventories expected to go down throughout 215. Nickel supply / demand balance, in thousand tonnes Nickel stocks (LME + Ni producer stocks) in weeks of stocks real consumption 18 13 3 21 13 34 57 52 21 43 29 2 18 16 14 16,7 15,8 11,7 12 Q1 12 2 3 4 Q1 212 13 +82kt 2 3 4 Q1 213 14 +156 kt -11-19 -29-23 -18 2 3 4 Q1 2 3 4 214 15 215 +73 kt -8 kt 1 8 Q1 12 2 3 4 Q1 13 2 3 4 Q1 14 2 3 4 Q1 15 2 3 4 34
CONCLUSION The nickel market experienced a first «recovery wave» in the first half of the year 214, where the market entered into a deficit based on real consumption. This real deficit has been «hidden» by a heavy nickel cathode destocking in China and a strong NPI production in the first half of the year, giving the impression that the nickel market was still heavily oversupplied. FollowingaperiodofpricestabilityinQ3,webelievethatwearenowonthevergeofasecond«recoverywave», driven by a tightening ore availability, constrained NPI production and ultimately a LME inventories withdrawal. 35