World Nickel Market Turning point at last September 215 Jakarta
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Nickel Market: The Real Turning Point Pushed to 216 LME Nickel Price Down 33%, Inventories up 8% YTD 5 4 3 2 1 USD/t Aug-12 Aug-13 Aug-14 Aug-15 Johor Rotterdam Other Nickel Price 3, 25, 2, 15, 1, 5, LME Inventories Accumulation Slowed Down in 1H 215, Reversal in 3Q 15 7 6 5 4 3 2 1-1 -2 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14 1Q 15 3Q15* Johor Rotterdam Other Q-o-Q change Nickel Market Fairly Balanced in 215, Deficit in 216 China Reliance on Imported Ni metal Surged in 215 1,2 Ni units, 197 133 16 11 (22) 21 211 212 213 214 215E 216E Source: Company data, Bloomberg; Note: As of September 17 9 6 3 1% 17% 73% 6% 17% 77% 1% 2% 18% 34% 72% 46% 212 213 214 215E Ni Ore (Ni units) Refined Nickel Fe-Ni & NiO (Ni units) 2
Primary Nickel Market Balance
The Primary Nickel Market: Finally Moving to Deficit Major Market Highlights Consumption: Stable Growth after 27-21 Turbulence In 27-29 and 211-213 nickel supply outstripped demand, LME nickel inventories increased, market surplus put a negative pressure on nickel prices; Considerable nickel market surplus was driven mostly by growing Chinese NPI production from high-grade Indonesian ore; Indonesian ban introduced in 214 was a turning point for nickel market, though without immediate effect due to high level of ore inventories in Chinese ports, increase in ore supply from Philippines and introduction of technique of ore blending; New projects in 215-217 can only partly compensate the loss of Indonesian feed, while underinvestment in 212-213 will result in lower new supply in the next 3-5 years; Indonesian ban will turn the market into sizeable deficit in 216, which will widen in 217; Current spot nickel price is not attractive as over 6% of the global industry is making cash losses and does not reflect market fundamentals; Nickel Market Entering Deficit Only in 216 2,2 2, 1,8 1,6 1,4 1,2 Reduced nickel price stainless crisis Active 4-series substitution Economic crisis 12% -5% -3% -1% Economic and SS recovery 14% 1% 25 26 27 28 29 21 211 212 213 214 215 216 High Growth Rates of Production Driven by NPI are Expected to Decline 5% 6% 5% 3% 4% 25 2 15 1 5-5 -1 197 133 97 85 16 14 41 11 (22) 25 (54) (43) 25 26 27 28 29 21 211 212 213 214 215 216 2,2 2, 1,8 1,6 1,4 1,2 6% Low nickel price forced reduction in high cost Ni production 6% -4% -4% 9% Indonesian ban impact 13% 11% 11% 1% -2% 1% 25 26 27 28 29 21 211 212 213 214 215 216 Source: Company data Y-o-Y 4
LME Inventories Accumulation Slowed Down in 215 Primary Nickel Market Balance: Since 25 Accumulated Stockpiles Amounted to 7 Annual primary nickel market surplus / deficit 25 2 197 15 1 5 14 97 85 41 11 16 133 25-5 (22) (54) (43) (67) -1 25 26 27 28 29 21 211 212 213 214 215 216 217 Primary Nickel Inventory up to 7, 7% of Transparent Stock Means Better Market Visibility Nickel stock movement 8 7 6 5 4 3 2 1 19 194 235 213 225 331 527 66 685 6% LME 7% 642 LME& SHFE 26 27 28 29 21 211 212 213 214 215 216 217 LME&SHFE Change as of the year end: China financial and traders stocks Other stocks (including SRB) Total nickel stock 575 Source: Company data 5
Physical Nickel Deficit Is Looming in 2Q 215 Market Short-term Trends DEMAND Europe and Americas demonstrated growth (y-o-y) of primary nickel consumption in 1H 214, but reduced it sharply in 2H 214; China s output remained robust through 214; In 1H 215 Chinese stainless production slowed down, however, primary nickel consumption grew at a faster rate due to the surge of nickelintensive 3 series output; SUPPLY In 214 NPI output in China remained high due to significant ore inventory, which kept nickel market in surplus; Shut-downs of NPI capacities started in 3Q 214; Indonesian ban and output cuts due to technical problems turn market into physical deficit in 2Q 215 after a major surplus in previous period, where it will remain fairly balanced till the end of the year; 55 5 45 4 35 Nickel Consumption: Weak 3Q 14 1Q 15 % 4% 13% 8% 8% 12% 2% -2% % 5% 5% 5% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 212 213 214 215 Nickel Market Balance: Deficit Already in 2Q 15 Nickel Production: Slowdown in Production from 4Q 14 8 6 4 2-2 17 31 39 19 52 58 48 39 43 14 45 3 31-14 1 8 55 5 45 4 8% 1% 14% 12% 5% 2% 1% -3% -3% -1% -5% % -4 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 212 213 214 215 Source: Company data 35 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 212 213 214 215 Y-o-Y
Ore Stocks in China are Depleting, Imports of Nickel Units Surge Chinese Ni Ore Inventories: High&Medium Grade Ore Just Over a Month of Consumption Left Nickel Feed for Chinese NPI to Reduce by 35% by 216 5 4 3 2 1 mt Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 LG ore (Ni,8-1,2%) Blended HG & MG ore MG ore (Ni 1.3-1.6%) HG ore (Ni > 1.7%) Month of consumption HG & MG ore Strong Increase of Fe-Ni and Re-Ni Imports to China 15 +61% +1% 5 8 6 4 2 5 Ni contained, 4 15 37 1 3 15 244 2 167 28 31 3 1 91 226 6 48 65 26 26 2 59 94 127 132 21 26 27 28 29 21 211 212 213 214 215 216 217 Ore imported from the Philippines Ore imported from Indonesia Ore from Chinese stock China NPI Production Down: July Run-Rate at 44 pa -18% 5 1 5 4 3 2 1 4 3 2 1 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Fe-Ni import (LHS) Refined Ni import (RHS) Jan 14 April 14 July 14 Oct 14 Jan 15 April 15 July 15 7M15 Y-o-Y Source: Company data, China custom statistics, Bloomberg Y-o-Y% 7
New Nickel Projects Unable to Satisfy Demand Growth New Projects Cannot Compensate for NPI Losses while Nickel Consumption Keeps Growing 12 Change in incremental supply Change in incremental demand 1 8 35 3 25 +3% +4% +4% 8 6 2 8 4 15 1 65 2 5 94 214 215E 216E 217E -2-4 214 215 216 New projects growth China NPI production losses Indonesian NPI ramp-up Change at existing operations Sources: Wood Mackenzie, Company estimates 8
Supply Side Response - Price Is Unsustainably Low Production Cuts: Approximately 8% Expected in 215 Announced Nickel Output Cuts and Shut-Downs % of supply Price-driven shutdowns Company Project name Type of product Reason Capacity loss, 2% 15% 1% 5% % 1% 28 Q2 16% 28 Q3 16% 18% 28 Q4 29 Q1 1% 1% 1% 212 Q4 213 Q1 Technical issues, feed stock problems and price-driven shut-downs 213 Q2 5% 213 Q3 5% 3% 215E Sherritt International Sumimoto Metals Mining Ambatovy Nickel macro driven ~2-4 Hyuga plant Ferronickel feed availability ~3 Glencore Koniambo plant Ferronickel accidents ~4 BHP Billiton Cerro Matoso Ferronickel accidents strikes ~4 Anglo American Barro Alto Ferronickel repairs works ~9 Primary Ni production cuts Chinese NPI 215 Global Nickel Cash Cost Curve (C1): Over 6% is Loss Making but out of 1.2 mt of Loss-making Capacity Not All Capacity is Price Sensitive 25, Nickel Price, USD/t 2, 15, 1, 5, -5, 215 YTD 12,75 $/t Spot Price 9,9 $/t 2 4 6 8 1, 1,2 1,4 1,6 1,8 2, 35% 65% 39% 17% 5% 4% Profitable Diversified miners Government support Project ramp-up -1, Primary Nickel Production, Under risk -15, Source: Company data, Wood Mackenzie 9
Nickel Feed for China: Little Progress So Far in Indonesia Only 3 Projects in Indonesia Have High Probability of Completion Indonesia NPI Output Forecast for 215-22 Project name Process Status Start year Capacity, pa Ni mt 167 234 274 Indoferro BF Started 213 12 PT Cahaya Modern Metal Industry BF Started 214 3 Tsingshan RKEF High 215 3 9 projects RKEF, BF Medium 216-218 8 projects RKEF, BF, Leach Low 216-217 163 86 6 2 54 19 214 215 216 217 218 219 22 Comissioned in 214-215 Medium probability High probability Low probability Growth of Nickel Ore Imports from Philippines to China is slowing Down 1 8 mt 7M15 y-o-y: +1% 6M15 y-o-y: +15% 6 4 2 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Indonesia Philippines Other Source: Company data, China custom statistics, Bloomberg 1
World primary nickel consumption: main trends World Primary Nickel Consumption in 215: China and Americas are Main Drivers for Stainless Steel Changes Y-on-Y basis: Consumption in Stainless Steel 2,2 Consumption in non-stainless applications +4% +4% +3% 2, +5% 1,8 1,6 1,8 1,894 1,961 2,4 2,12 1,4 213 China Europe Americas Asia (ex China) 214 China Europe Americas Asia (ex China) 215 216 217 Consumption triggers for 215 Increase in HG Nickel Consumption? Temporary? China share in global Ni demand has grown from 5% to 5% over the last 15 years!; Chinese Stainless Steel industry (Tsingshan, Fujian Fuxin, Shandong, Sichuan Southwest, Baosteel, TISCO and others) is expected to further expand capacity at 6% CAGR in 215-217. But risk of slowdown is high; Solid growth expected in global alloy and super alloy sector mainly driven by aerospace industry; Moderate growth in ROW expected in 215 and beyond; 2 15 1 5 42% 43% 44% 31% 31% 41% 47% 51% 49% 36% 38% 35% 34% 69% 69% 62% 65% 66% 64% 59% 53% 49% 51% 56% 58% 57% 25 26 27 28 29 21 211 212 213 214 215 216 217 HG nickel consumption LG nickel consumption Source: Company data
World Primary Nickel Consumption: Geographical Diversification 25-214. China is 5% of global nickel consumption in 214 Forecast. Slower growth in China, acceleration of growth in Americas 32% 14% 37% 17% 25% 11% 14% 14% 14% 12% 28% 37% 3% 34% 29% 37% 36% 2% 26% 26% 21% 2% 21% 22% 22% 1% 9% 1% 1% 1% 2% 21% 21% 25% 23% 42% 44% 48% 49% 5% 215 CAGR 25-214 -2% % % 1% % 2% 6% 18% 25 26 27 28 29 21 211 212 213 214 215 China Europe, Africa and CIS Americas Asia (exl. China) -5% % 5% 1% 15% 2%!!! World primary nickel consumption Europe and Asia loosing share to China!!! Source: Company data
Ni-intensive Stainless Steel Production in China Growth Driver China Ni-intensive Stainless Steel Production up Strongly in 1H 215 3-series stainless steel production in China: Growth is Continuing in 215 1,4 1,2 1, 9,8 +11% -5% 9,975 +515 (159) -9% (192) +2% 1,139 3,6 3,2 2,8 2,4 2, 9,6 1,6 9,4 1H 214 2 (1.5-2% Ni) 3 (8-12% Ni) 4 (-.5% Ni) 1H 215 Primary Nickel Consumption (Stainless Steel) 1,2 1Q 2Q 3Q 4Q 212 213 214 215 Primary Nickel Consumption (Non-Stainless Steel) 1,6 +4% 6 +2% 1,2 +1% 5 4 +1% 8 3 4 +6% 2 1 +4% 21 211 212 213 214 215E 21 211 212 213 214 215E Nickel consumption in China Nickel consumption in other countries Nickel consumption in China Nickel consumption in other countries Source: Company data ХХ% Y-o-Y 13
World primary nickel consumption: Industrial diversification 25-214. No big changes in demand. Nickel consumption in stainless is most sensible to economic crisis 2 15 1 11% 9% 11% 1% 1% 11% 9% 9% 13% 11% 12% 1% 9% 13% 14% 11% 8% 12% 11% 8% 12% 1% 7% 12% 1% 7% 11% 1% 1% 7% 7% 11% 11% Forecast. Major uncertainty. Stainless and alloys growth expected to be below historical average due to slowdown in China and weak oil price 215.2% 3.3% 3.9% 4.3% 5 69% 7% 69% 66% 65% 69% 7% 71% 72% 72% 72% CAGR 25-214 1.6% 3.7% 4.6% 5.2% 25 26 27 28 29 21 211 212 213 214 215 Stainless and Special Steel Alloys Plating Others % 1% 2% 3% 4% 5% 6%!!! World primary nickel consumption Stainless and Special Steel continue to dominate!!! Source: Company data
Thank you for attention! 15