Commodity Insights Bulletin - Nickel Q2, 2016 - Q3, 2016

Commodity Bulletin - Nickel Q2, 2016 - Q3, 2016

Nickel prices have seen a bit of a run in the late half of Q2 and early part of Q3 before seeing a slight pull back.

Commodity Lead, Nickel

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Overview

Investors and the market remain cautious and continue to play a wait and see approach to the potential outcome of a loosening on the Indonesian export ban mixed with the tightening of environmental rules since the middle of Q2 in the Philippines and the closing of 8 operating mines in the county to date.

The market remains in a current surplus inventory position, which is causing the market price to continue to suffer pending further clarity on the demand from China.

It is expected that the volatility will continue through the end of 2016 until the outcome of these variables is better understood.

Price outlook

Nickel prices averaged at about US$12,412/t in 2015 — a 28 percent y-o-y decline from 2014 as a result of the disturbances in supply of nickel and reduced demand for stainless steel in Europe.

During Q2 and Q3 2016, nickel prices steadily increased to reach a 12-month high of US$10,815/t in August 2016. This recent price hike was driven by sentiments over concerns of shortage in global nickel supply, due to the suspension of operations at eight nickel mines in the Philippines in Q3 2016. However, nickel prices are expected to moderate at US$9,435/t toward the end of 2016, since China’s reduced imports from Philippines, will be replaced with increased ferronickel imports from Indonesia and mined nickel imports from New Caledonia.

During Q3 2016, LME (London Metal Exchange) and SHFE (Shanghai Futures Exchange) stocks were up 1.9 percent since the start of 2016. However, due to the higher momentum and magnitude of mine closures expected in the Philippines, which cannot be offset by a sustained increase in ferronickel production from Indonesia and the resumption of ore exports from New Caledonia, prices are expected to continue to increase during the forecast period.

Nickel prices are expected to increase at a CAGR of 11 percent 2016–2020 to reach US$16,314/t, driven by slight recovery in Chinese consumption. In 2016, the demand for refined nickel and ferro-nickel in China has risen to produce more 300 series nickel-bearing grades used in stainless steel production. Additionally, the Indonesian and Philippine ore supply has not been sufficient to feed China’s nickel-pig iron market.

Source(s): Consensus prices from Capital IQ, accessed October 2016.

*The following conversion has been used 1 Mt = 2204.624 lb.

Supply and demand

Supply

  • During Q2 2016, world mined nickel production decreased 9 percent y-o-y impacted by the decline in the production from the Philippines, which was down 28 percent to 122,000 tons as a result of ore depletion and impact of heavy rains.
  • Global nickel mine production is expected to decrease by 4.9 percent from 2.1 million tons (Mt) in 2015 to 1.99Mt in 2016 and then expected to increase by 1.3 percent to 2.02Mt in 2017. The decline in the Philippine mine output in 2016, as a result of suspension of operations amid environmental concerns, is expected to be offset by increased mined nickel production from PT Antam-owned Indonesian nickel mines and Goro nickel mine in New Caledonia in 2017. Mined nickel production is expected to grow at a CAGR of 2.1 percent to 2.21Mt in 2020.
  • Major Philippine nickel producers, including Nickel Asia, Global Ferronickel, SR Metals and CTP Corp. — accounting for almost 60 percent of the country's nickel ore output — have been impacted by ore suspensions and weather challenges. For example, Nickel Asia attributed a 12 percent drop in its first-half sales to weather-related shipment delays. However, it is the smaller-scale operators — who emerged following Indonesia's early 2014 ban — that are most at risk. During Q2 and Q3 2016, the Philippines suspended eight nickel mines and plans to suspend another 20 for environmental violations.

Source: Deutsche Bank, Nickel’s many twists and turns, via Thomson Research, accessed October 2016.

  • In 2016, global refined nickel production is estimated to decrease by 2.9 percent y-o-y to 1.91Mt, due to lower production in China. During Q2 2016, global refined nickel production declined by 2.4 percent y-o-y, despite a 90 percent increase in Indonesian nickel production.
  • During Q2 and Q3 2016, Chinese refined nickel production — the world’s largest nickel producer — fell by 10 percent to 152,700 tons. Growing imports of ferronickel from Indonesia have partly displaced the market for Chinese nickel pig iron, resulting in lower production. During the same period, Russian nickel production declined by 11 percent to 49,800 tons, since the production facilities of the Norilsk nickel plant at Kola MMC were shut down for modernization and upgrade.
  • Global refined nickel supply is expected to increase marginally at a CAGR of 1.5 percent from 1.91Mt in 2016 to 2.07Mt in 2020 since the uncertainty around mine production in the Philippines — the main source of supply to China — is expected to impact Chinese refined metal output.

Source: Deutsche Bank, Nickel’s many twists and turns, via Thomson Research, accessed October 2016.

Demand

  • During Q2 2016, world refined nickel consumption increased 8 percent y-o-y to 529,000 tons, driven by nearly 10 percent increase in Chinese consumption, amounting to 285,300 tons. Growing nickel consumption in China has also been an outcome of higher overall steel production and increased production of nickel-bearing stainless steel during H1 2016. The 300 series stainless steel, which contains 8–10 percent nickel is more commonly used in construction and kitchen fixtures.
  • During Q2 2016, nickel consumption in the US increased 14 percent y-o-y to 40,400 tons, driven by increased stainless steel production, which was supported by anti-dumping measures conducted by the US International Trade Commission (USITC) on various stainless steel products, such as steel concrete reinforcing bar from Japan, Taiwan and Turkey, which are allegedly sold in the US at lesser value.
  • Consumption of nickel is forecast to grow moderately at a CAGR of 1.4 percent to 2.09Mt in 2020. More diverse usage of nickel in high-value goods, electric vehicles batteries, alloys used in specialist engineering, power generation and military and aerospace equipment is expected to offset nickel’s declining demand amid slowdown in the construction activity in China.

Source: Deutsche Bank, Nickel’s many twists and turns, via Thomson Research, accessed October 2016.

Key developments

Ownership changes

The total value of deals more than doubled to US$0.51 billion in Q3 2016 from US$0.16 billion in Q2 2016. The number of deals increased to eight during Q3 2016 from three deals in Q2 2016.

There has been a growth in deals in Q3 2016 supported by rising nickel prices, growing funds and emergence of low-cost startups in the industry.

On 23 September 2016, Aluminum Corp of China Overseas Holdings Ltd — a unit of the Chinese state-owned Aluminum Corp of China — agreed to acquire the remaining 15 percent stake in Chinalco Mining Corp International, a Beijing-based copper and nickel ore mine operator, for US$325 million.

Source: MergerMarket and Thomson One accessed October 2016.

Regulatory updates

Table 1: Nickel deals announced in Q2 and Q3 2016
Date announced Target Acquirer Status Value of transaction
(US$ million)
Stake (%)
23-Sep-16 Chinalco Mining Corp Intl Aluminum Corp of China OHL Announced 325.5 15.5
15-Sep-15 Anfield Gold Corp Ross J Beaty Completed
3.8 22
15-Sep-16 Taganito HPAL Nickel Corp Sumitomo Metal Mining Co Ltd Announced 42.0 75
07-Sep-16 Nussir ASA Baker Steel Resources Tr Ltd Completed 0.6 15
01-Sep-16 Nak copper-gold Project Darnley Bay Resources Ltd Announced 0.3 100
26-Aug-16 Powell Property Rainy Mountain Royalty Corp Announced 0.02 100
02-Aug-16 Kiwanda Peru SAC The Carajas Copper Co Ltd Announced 0.5 100
05-Jul-16 Thompson Creek Metals Co Inc Centerra Gold Inc Announced 137.2 100
23-Jun-16 Sama Resources Guinea SARL Section Rouge Media Inc Announced 1.5 100
26-Apr-16 Aura Minerals Inc Northwestern Enterprises Ltd Completed 6 29.2
01-Apr-16 Vale Nouvelle-Caledonie SAS Vale Exploration Canada Inc Announced 153 7.6

*covers deals including both nickel and copper.

Table 2: List of recent regulations in the nickel industry
Country/ Region Regulation/topic Description
Philippines  The Philippines shuts down eight nickel mines amid environmental concerns In September 2016, the Philippines Government announced the suspension of its eighth nickel ore mine and expects 20 more mines to be suspended as part of a nationwide audit in response to complaints on mining operators not complying with environmental regulations.
Indonesia Indonesia to revise mining regulations to boost nickel ore exports In October 2016, Indonesia announced the finalizing of its mining rules providing miners up to five more years to build smelters, and reopen exports of nickel ore, banned since 2014. The revised law will permit mining companies that have made significant progress in smelter development to continue exporting semi-finished mineral products. However, miners indicate that such a move will create another policy flip-flop, since the prevailing law prohibits the export of unprocessed mineral ore in 2015 in hopes that it would push the development of the downstream sector.

References

Price outlook: "Resources and Energy Quarterly", Bureau of Resources & Energy Economics (BREE), Australian Government, September quarter 2016; consensus prices from Capital IQ; Nickel prices show signs of waking from their long decline, URL, 27 May 2016, Metal Miner website, accessed October 2016

 

Supply: "Resources and Energy Quarterly", Bureau of Resources & Energy Economics (BREE), Nickel caught between shifting Indonesian and Philippine supply trends, URL 1, 27 September 2016, Reuters website; Global nickel demand outlook flat for 2016, 2017 amid lack of drivers, URL 2 , 8 July 2016, Platts website; Vale expects Goro nickel output to increase 50 pct in 2016, URL 3, 1 December 2015; Stainless MMI up on Philippines mine closures, URL 4 , 7 October 2016, Metal Miner website; Norilsk Nickel closed the old nickel plant, URL 5 , 26 August 2016, Metal Info website; Deutsche Bank, Nickel’s many twists and turns, via Thomson Research accessed October 2016

 

Demand: "Resources and Energy Quarterly", Bureau of Resources & Energy Economics (BREE), Australian Government, September quarter 2016; Deutsche Bank, Nickel’s many twists and turns, via Thomson Research; US, URL , 4 November 2016, Antidumping publishing website, accessed November 2016

 

Ownership changes: MergerMarket and Thomson One; Opportunities for the bold – Africa M&A mining in 2016 and beyond, URL, 2 August 2016, Lexology website, accessed October 2016 MergerMarket and Thomson One accessed October 2016

 

Regulatory updates: Indonesia mulls revision to mining regulations to allow concs, nickel ore exports, URL 1,October 2016, Metalbulletin website; Philippines widens mining crackdown, boosting nickel prices, URL 2, September 2016, The Wall Street Journal website; Mining law revision hoped to stoke slow smelter progress, URL 3, 7 November 2016, The Jakarta Post website, accessed November 2016

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