Questions continue to remain about demand from China, which has kept downward pressure on nickel prices and will likely continue to do so for the near future.
During this period we have seen some capacity removed from the market, including the Philippine Nickel Industry Association which announced that it would be reducing output by 20%, along with a reduction in Chinese NPI production during the period, however LME inventories continue to remain high causing prices to remain depressed.1
There will likely continue to be price volatility in 2016 as the market waits to see the balance between Chinese demand and global supply. Given the high cost of closing Nickel projects, significant mine closures have not yet occurred, how long higher cost projects can continue to sustain losses will remain to be seen.
Nickel prices2 averaged at about US$11,839/t in 2015 — a 30 percent y-o-y decline from 2014 due to slowing economic activity in China. Despite the historically low prices and sluggish consumption growth in 2015, producers have been reluctant to substantially reduce production, considering their need to generate cash flow from new projects.
During Q1 2016, nickel prices continued to fall reaching US$7,710/t in February 2016. During Q2 and Q3 2016, prices are expected to remain low due to reduced consumption. Another major factor hindering the rise in prices is the growing stockpiles of nickel outside of London Metal Exchange (LME) warehouses. For example, Shanghai Futures Exchange (SHFE) nickel stocks increased 33 per cent in Q1 2016 and more than six-fold from June 2015 to March 2016. Hence, prices are expected to fall significantly in 2016 by nearly 26 percent y-o-y before starting to recover gradually in 2017.
Nickel prices are expected to increase at a CAGR of 9 percent during the forecast period (2016–2020) to reach US$12,400/t in 2020, driven by strong end-user demand from the transport, infrastructure and consumer durables sectors and recovery of the Chinese economy. Growing economic activity in China will boost demand for nickel from end user segments including infrastructure and industrial development and residential housing. Additionally, in the long term, nickel producers are expected to reduce their production capacity due to sustained losses. Therefore, when sufficient production cut occurs, supply availability is expected to tighten, resulting in recovery of prices.
The total value of deals more than doubled to US$2.46 billion in Q1 2016 from US$0.18 billion in Q4 2015. The number of deals increased to seven during Q1 2016 from five deals in Q4 2015.
There has been a surge in deals in Q1 2016 despite the low prices, as producers require new projects to generate cash flow.
There has been a surge in deals in Q1 2016 despite the low prices, as producers require new projects to generate cash flow.On 14th January 2016, an investor group, comprised of Aneka Tambang (Persero) Tbk PT and Indonesia Asahan Aluminium PT agreed to acquire a 10.6 percent stake in Freeport Indonesia PT (Freeport Indonesia), a Jakarta-based copper and nickel ore mine operator for US$1.7 billion.
*all deals have been included.
Table 1: List of recent regulations6 in the nickel industry
|Madagascar||New tax rules prevent nickel shipments||On February 2016, the Madagascar government announced its new Advance Cargo Declaration (ACD) regulations on mining companies, which levy a US$100 fee on every shipping container. As a result of the enforcement of this new regulation, nickel miners including Sheritt International were unable to ship its spare parts and nickel carrying containers from the island’s Toamasina port.|
|Indonesia||Indonesia to ease mining export ban from 2017||On February 2016, the Indonesian government announced plans to relax its ban on partially processed minerals exports, including nickel, copper, zinc and bauxite ore in order to boost its economy.|
Table 2: Nickel deals announced in Q4 2015 and Q1 20167
|08-Oct-15||Nord Resources Corp-Assets||Excelsior Mining Corp||Announced||8||NA|
|13-Oct-15||Macarthur Iron Ore Pty Ltd||GIM Australia Pty Ltd||Announced||4||100|
|28-Oct-15||Port Exploration Pty Ltd||Caeneus Minerals Ltd||Announced||1.6||100|
|06-Nov-15||Asmara Mining Share Co||
Sichuan Road & Bridge Mining Investment Development Corp Ltd
|26-Nov-15||Universal Coal PLC||Coal of Africa Ltd||Announced||89||100|
|14-Jan-16*||Freeport Indonesia PT||
Investor Group (Aneka Tambang (Persero) Tbk PT and Indonesia Asahan Aluminium PT)
|01-Feb-16||VMS Ventures Inc||Royal Nickel Corp||Announced||0.5||100|
|08-Feb-16*||Coro Mining Corp||Greenstone Resources LP||Announced||0.5||33|
|16-Feb-16||Magellan Minerals Ltd||Anfield Nickel Corp||Announced||10||100|
|01-Mar-16*||Azarga Metals Ltd||European Uranium Resources Ltd||Announced||2.5||60|
|10-Mar-16*||First Quantum Minerals (Kevitsa mine)||Boliden AB||Announced||712||NA|
|21-Mar-16*||Haib Minerals Pty Ltd||Jet Gold Corp||Announced||2||30|
*covers deals including both nickel and copper.
1 Philippine miners to cut nickel ore output, exports, March 2016, Business World Onine website, accessed May 2016
2 "Resources and Energy Quarterly", Bureau of Resources & Energy Economics (BREE), Australian Government, March quarter 2016, accessed April 2016
3 "Resources and Energy Quarterly", Bureau of Resources & Energy Economics (BREE), Australian Government, March quarter 2016; Profile PT Sulawesi mining investment, November 2015, Lowongankerja website; Output cuts halt nickel price fall, more mine closures needed, March 2016, Reuters website, accessed April 2016
4 "Resources and Energy Quarterly", Bureau of Resources & Energy Economics (BREE), Australian Government, March quarter 2016, accessed April 2016
5 MergerMarket and Thomson One accessed April 2016
6 Sherritt’s Madagascar unit says new tax rules prevent nickel shipments, February 2016, The Globe and mail website; Indonesia to ease mineral export ban from 2017, February 2016, Mining.com
website, accessed May 2016
7 MergerMarket and Thomson One accessed April 2016