Angela Durrant - Wood Mackenzie - Nickel: The only way is up – but when?

Nickel : The only way is up

– but when?

CHINA NICKEL Shanghai, May 24-25

2016

Angela Durrant – Senior Cost Analyst

[email protected]

50 Pitt St, Sydney, NSW, 2000

+61 2 8224 8807

Trusted commercial intelligence www.woodmac.com

mailto:[email protected]


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


3

The problem with nickel – fundamentally - oversupply since 2008

Cumulative surplus of ~950kt has seen prices move lower and lower

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-200

-150

-100

-50

0

50

100

150

200

250

300

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


4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-200

-150

-100

-50

0

50

100

150

200

250

300

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Pri

ce

($

/lb

)

Ba

lan

ce

(k

t)

Balance Price


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


5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-200

-150

-100

-50

0

50

100

150

200

250

300

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Pri

ce

($

/lb

)

Ba

lan

ce

(k

t)

Balance Price


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!


6

Agenda

1. Why are nickel prices so low?





7

Stock overhang preventing any upswing in prices

Need more than 6 months to draw down

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-200

-150

-100

-50

0

50

100

150

200

250

300

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


World nickel supply-demand balance, price and stocks outlook

Stock days = 267

@ end 2015


8

High stocks levels keeping sentiment low

LME stocks no longer a key indicator for demand

0

5000

10000

15000

20000

25000

0

100

200

300

400

500

600

700

800

900

1000

Ja

n-1

4

Fe

b-1

4

Mar-

14

Ap

r-1

4

May-1

4

Ju

n-1

4

Ju

l-1

4

Au

g-1

4

Se

p-1

4

Oct-

14

No

v-1

4

De

c-1

4

Ja

n-1

5

Fe

b-1

5

Mar-

15

Ap

r-1

5

May-1

5

Ju

n-1

5

Ju

l-1

5

Au

g-1

5

Se

p-1

5

Oct-

15

No

v-1

5

De

c-1

5

Ja

n-1

6

Fe

b-1

6

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


Global nickel stocks, Excl RoW producer/consumer stocks; Malaysia and Singapore (off-exchange)

China de-stocking


9

Chinese nickel stocks increase to represent > 6 months demand At the same time Chinese stainless demand had softened

-60

-40

-20

0

20

40

60

80

0

50

100

150

200

250

300

350

Q1/1

2Q

2/1

2Q

3/1

2Q

4/1

2Q

1/1

3Q

2/1

3Q

3/1

3Q

4/1

3Q

1/1

4Q

2/1

4Q

3/1

4Q

4/1

4Q

1/1

5Q

2/1

5Q

3/1

5Q

4/1

5

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


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%


10

Short term demand outlook - not strong enough to make an impact

on stocks

China no longer the demand powerhouse it once was

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

An

nu

al g

row

th

China World RoW


Historic and forecast growth in global nickel demand

+60kt Ni demand

over next 5yrs


11

Agenda

1. Why are prices so low today?





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


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

0

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

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

$/lb

Nic

kel



14

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


-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0

Cumulative Production (kt)

US

$/l

b ~60% loss making


15

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


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


-150

-100

-50

0

50

100

150

200

250

300

2014 2015 2016 2017

Pro

du

cti

on

(k

t)

Net loss Jinchuan

Ferronikeli Feni

Sandouville Loma de Niquel

Yabulu Tocantins - Sao Miguel


16

Agenda

1. How did nickel get into such dire straits?





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

1000

1500

2000

2500

1990

1995

2000

2005

2010

2015

2020

2025

2030

kt

Existing supply

Probable projects

ConsumptionMarket requires

+390kt Ni by 2030

to be balanced


18

Indonesian NPI capacity build slow – hindered by economic

environment

But no need for these nickel units just yet

0

50

100

150

200

250

300

Q1-1

4

Q2-1

4

Q3-1

4

Q4-1

4

Q1-1

5

Q2-1

5

Q3-1

5

Q4-1

5

Q1-1

6

Q2-1

6

Q3-1

6

Q4-1

6

Q1-1

7

Q2-1

7

Q3-1

7

Q4-1

7

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


19

Prices need to rise to promote long term investment in nickel

Long term incentive price of $9.00/lb, but short term action needed

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-200

-150

-100

-50

0

50

100

150

200

250

300

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


World supply-demand balance, price and stocks outlook


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


21

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

E [email protected]

T +61 2 8224 8807


22

Disclaimer

This presentation has been prepared by Wood Mackenzie Limited for delivery at the

13th China Nickel Conference. It is intended solely for the benefit of attendees of the

conference in Shanghai on 24-25 May 2016. It has not been prepared for the benefit of

any particular attendee and may not be relied upon by any attendee or other third party.

If, notwithstanding the foregoing, this presentation is relied upon by any person, Wood

Mackenzie Limited does not accept, and disclaims, all liability for loss and damage

suffered as a result.

The information contained in these slides may be retained by attendees.

However, these slides and the contents of this presentation may not be disclosed to

any other person or published by any means without Wood Mackenzie Limited's prior

written permission.

Strictly Private & Confidential

Europe +44 131 243 4400

Americas +1 713 470 1600

Asia Pacific +65 6518 0800

Email [email protected]

Website www.woodmac.com

Wood Mackenzie™, a Verisk Analytics business, is a trusted source of commercial intelligence for the world's

natural resources sector. We empower clients to make better strategic decisions, providing objective analysis

and advice on assets, companies and markets. For more information visit: www.woodmac.com

WOOD MACKENZIE is a trade mark of Wood Mackenzie Limited and is the subject of trade mark registrations and/or applications in

the European Community, the USA and other countries around the world.

Business

Angela Durrant - Wood Mackenzie - Nickel: The only way is up – but when?