Commodity Insights Bulletin - Nickel Q4, 2016 - Q1, 2017

Commodity Bulletin - Nickel Q4, 2016 - Q1, 2017

The first quarter of 2017 was marked by regulatory changes and continued price/market uncertainty.

1000

Commodity Lead, Nickel

KPMG in Canada

Contact

Related content

Overview

In February 2017, the Philippine government closed 23 mostly nickel mines potentially shutting down up to 50% of the country’s nickel production, however just prior to this in January 2017 the government of Indonesia announced new rules allowing the export of nickel ore which had previously been banned. Uncertainty remains as to whether these decision will remain in effect and as markets look to digest this information and the price has accordingly been volatile during the period.

The market will continue to look for signs of true supply side constraints before a sustained price increase can occur.

Price outlook

Nickel prices were estimated to average at about US$9,612/t in 2016 — a 23 percent y-o-y decline, driven by concerns of uncertainty in global nickel supply due to ore suspensions and weather challenges in the Philippines and reduced demand for stainless steel in Europe. The Philippines is one of the world’s major nickel producers expected to have accounted for about 21 percent of global nickel supply in 2016.

During Q4 2016, nickel prices reached a 14-month high of US$11,583/t in November, following concerns of supply-side disruptions, due to the suspension of operations at several nickel mines, including Berong, Toronto and Pulot nickel mines in the Philippines. During mid-2016, the country witnessed suspensions at about eight nickel mines amid environmental concerns. Another factor driving nickel prices was the stainless steel production growth in China. During Q4 2016, nickel stocks remained relatively high however — with both LME (London Metal Exchange) and SHFE (Shanghai Futures Exchange) stocks reaching 471,000 tons in December 2016.

During Q1 2017, nickel prices averaged US$10,315/t — a 4.7 percent decline q-o-q, due to the partial lifting of nickel export ban in Indonesia resulting in increased supply. In contrast, nickel prices recovered to reach US$11,000/t, toward the end of Q1 2017. This was followed by the announcement of closure of 23 nickel mines in the Philippines in February 2017, expected to account for about half of the country’s nickel output during this year. In 2017, nickel prices are expected to increase by 16 percent y-o-y to US$11,155/t, owing to the decline in global nickel stocks and consumption exceeding supply.

Long-term nickel prices are expected to increase at a compound annual growth rate (CAGR) of 11 percent from US$11,155/t in 2017 to US$15,256/t in 2020. Nickel consumption growth will be supported by strong infrastructure investment in China and the US, and strong growth in stainless steel production in China. Reduced supply from the Philippines is expected to support the increase in prices during the forecast period (2017–2020F). Nevertheless, uncertainty still exists about the frequency of enforcement of mine suspensions in the Philippines. In addition, prices are expected to change depending on the production output from newly built smelters in Indonesia.

Source(s): Capital IQ consensus prices; BMO Capital Markets: Global Metals & Mining: 2017 Outlook: A much improved backdrop for most equities, via Thomson Research, accessed April 2017

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

Supply and demand

Mined nickel supply

  • In 2016, global nickel mine production was estimated to decline marginally by 1.7 percent y-o-y to 2,001 kilo tons (kt) due to the reduced production in Russia and the Philippines that was partly offset by increased output from Indonesia. In 2016, Indonesia accounted for about 9 percent of the global nickel supply and is expected to increase its share to 12 percent in 2017.
  • In 2017, global nickel mine production is expected to remain relatively stable at 1,981kt. Increased mined nickel production from PT Antam-owned Indonesian nickel mine and Goro nickel mine in New Caledonia is expected to offset the reduced mine output from the Philippines. In January 2017, the Indonesian government decided to relax its ban on partially processed mineral exports, including nickel ore, under certain conditions. The export ban (in place since 2014) was aimed to encourage miners to build smelters and process ore locally. Under the new legislation, miners will be able to export ore as long as they show progress toward building smelters in a five-year period.
  • The Philippines has been the world’s largest nickel ore producer since 2014. In 2014, following Indonesia’s nickel export ban, it increased its nickel supply to key demand regions such as China, Europe and the US. However, following the appointment of Regina Lopez — an anti-mining advocate — as Secretary of the Department of Environment and Natural Resources in June 2016, production at several nickel mines in the Philippines was suspended. In February 2017, the final environmental audit results on these mines were announced, and recommendations were made for the closure of 23 mines (mostly nickel laterite mines).
  • Long-term global nickel mine production is expected to increase at a CAGR of 2.7 percent from 1,981kt in 2017 to 2,146kt in 2020. The increased supply from Indonesia following the ease of nickel ore export ban and growing production from Australia and New Caledonia is expected to offset declining production from the Philippine mine closures during the forecast period (2017–2020F). In January 2017, the governments of Australia and New Caledonia have approved requests from nickel miners to increase exports to China amid rising demand. China has been looking for other suppliers due to the reduced Philippine mine supply.

Source: BMO Capital Markets: Global Metals & Mining: 2017 Outlook: A much improved backdrop for most equities, via Thomson Research, accessed April 2017.

Refined nickel supply

  • Refined nickel supply from Indonesia and New Caledonia increased in 2016, with the addition of more smelting capacity. This was offset by a substantial decline in Russia’s refined nickel production, since Norilsk Nickel (one of the major nickel producers) decommissioned its nickel plant as part of an ongoing plan to upgrade other facilities. As a result, global refined nickel production was estimated increase by 2.5 percent y-o-y to 1,228kt in 2016.
  • In January 2017, the new legislation was passed in Indonesia that requires nickel miners to increase their smelting capacity by 30 percent to process low-grade nickel ore. China’s preference for Indonesian ferronickel (refined nickel) due to its cheaper price is expected to boost Indonesian refined nickel production in 2017. Therefore, global refined nickel production is expected to increase by 5.4 percent y-o-y to reach 1,295kt, majorly driven by the ramp up of smelters in Indonesia.
  • Long-term global refined nickel production is expected to increase marginally at a CAGR of 1.2 percent from 1,295kt in 2017 to 1,341kt in 2020, driven by the continued ramp up of smelters in Indonesia. Power shortages, poor infrastructure and other mining issues in Indonesia are expected to constrain the pace of growth during the forecast period (2017–2020F).

Source: BMO Capital Markets: Global Metals & Mining: 2017 Outlook: A much improved backdrop for most equities, via Thomson Research, accessed April 2017.

Demand

  • In 2016, global nickel consumption was estimated to grow by 6 percent y-o-y to reach 1,965kt. This growth will likely be supported by the recovery in stainless steel production in China. Globally, about 63 percent of nickel production is used by the stainless steel manufacturing industry. China has been the major driver of stainless steel production over the past few years, as it is extensively used in the construction, manufacturing, infrastructure and automotive sectors.
  • In 2017, global nickel consumption is expected to increase by 4 percent y-o-y to 2,045kt. During this period, its demand is expected to be driven by the ramp up of stainless steel smelting capacity in China and President Trump’s plans of investment in the US infrastructure sector. In addition, the increase in production of the austenitic stainless steel grades* will increase nickel usage in all the key markets such as China, Japan, the US and Europe.
  • Long-term global nickel consumption is expected to increase at a CAGR of 4.3 percent, from 2,045kt in 2017 to 2,318kt in 2020. During the forecast period (2017–2020F), the global demand for nickel is expected to be more positive than for other metals such as steel and copper. In addition to the growing demand from the stainless steel industry, consumption is likely to be driven by the wide range of applications in other industries, such as vehicle batteries and aerospace equipment, by 2020.

Source: BMO Capital Markets: Global Metals & Mining: 2017 Outlook: A much improved backdrop for most equities, via Thomson Research, accessed April 2017.

Key developments

Ownership changes

The total value of nickel deals increased significantly to US$1.17 billion in Q1 2017 from US$8.33 million in Q4 2016. The total number of deals remained same at six during both Q4 2016 and Q1 2017. Hence, the average deal value* increased significantly from US$1.4 million in Q4 2016 to US$194.3 million in Q1 2017.

Two high-value nickel acquisitions took place during January 2017. These include:

  • On 5 January 2017, Switzerland-based Glencore Plc acquired the remaining 31 percent stake in Mutanda Mining SARL, a copper and nickel ore mine operator based in the Democratic Republic of the Congo, for a value of US$922 million. Through this deal, Glencore aims to gain greater control of Mutanda Mining’s copper and nickel mines. The company is expected to benefit from the deal as a result of the rising commodity prices.
  • On 11 January 2017, an investor group, including Hangzhou Yuyang Investment Management Partnership, Hangzhou Yuyi Investment Management Partnership and Zhuhai Lanqiao Fund Management Co. Ltd, agreed to acquire 11.6 percent stake in Chengtun Mining Group Co. Ltd — a China-based copper and nickel ore mine operator — for a value of US$215.4 million.

Source: MergerMarket and Thomson One accessed April 2017

*All deals with only disclosed values during Q4 2016 and Q1 2017 have been included. The deal list covers deals including both nickel and copper.

Table 1: Nickel deals announced in Q4 2016 and Q1 2017
Date announced Target Acquirer Status Value of transaction
(US$ million)
Stake (%)
22-Mar-17 Royal Nickel Corp (Dumont Nickel Project)
An investor group, including Waterton Mining Parallel Fund, Onshore Master LP and Waterton Precious Metals Fund II Cayman LP Announced 3.8 22.5
20-Mar-17 Kalia Holdings Pty Ltd GB Energy Ltd Announced 0.46 72.3
27-Feb-17 NiCo Minerals Pty Ltd Western Mining Network Ltd Announced 3.9 100
17-Jan-17 Madencom Maden Arastirma Aksel Yatirim Holding AS Completed 2.2 100
11-Jan-17 Chengtun Mining Group Co Ltd An investor group, including Hangzhou Yuyang Investment Management Partnership,
Hangzhou Yuyi Investment
Management Partnership and Zhuhai Lanqiao Fund Management Co Ltd
Announced 215.4 11.6
05-Jan-17 Mutanda Mining SARL Glencore PLC Completed 922.3 31
30-Dec-16 Kec Exploration Pty Ltd Christopher Reindler Announced 0.02 70
16-Dec-16 Fox Resources Ltd-AGIP Radio Artemis Resources Ltd Announced 3.5 NA
31-Oct-16 Kalongwe Mining SA Kalongwe Resources Pty Ltd Completed 3.0 15
20-Oct-17 Mawson West Ltd Galena Private Equity Fund Announced 1.4 7.3
20-Oct-17 Falcon Minerals
Ltd (Collurabbie nickel-gold
Project)
Rox Resources Ltd Announced 0.12 NA
19-Oct-16 Nortec Minerals Oy Nickel One Resources Inc Announced 0.36 NA

(The list covers deals including both nickel and copper. Only deals with disclosed values have been mentioned in the table above.)

Regulatory updates

Table 2: List of recent regulations in the nickel industry
Country/region Regulation/topic Description
Philippines The Philippines announced shut down of 23 nickel mines amid environmental concerns. In February 2017, the Philippine Government announced the closure of 23 mines — mostly nickel laterite mines — as part of the government’s campaign to fight environmental degradation by the mining industry. The mines ordered for shut down accounted for about 50 percent of the country’s annual output.
Indonesia Indonesia plans to ease export ban on nickel ore. In January 2017, Indonesia announced new rules allowing export of nickel ore, bauxite and concentrates of other minerals. These rules will allow nickel producers to extend their mining permit for up to five years before expiry of the license. In addition, nickel suppliers must now dedicate at least 30 percent of their smelter capacity to processing low-grade ore.

References

  

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.