Commodity Insights Bulletin - Nickel Q2 - Q3, 2017 | KPMG | GLOBAL
close
Share with your friends

Commodity Insights Bulletin - Nickel Q2, 2017 - Q3, 2017

Commodity Insights Bulletin - Nickel Q2 - Q3, 2017

The second and third quarters of 2017 continued to demonstrate market uncertainty, however it started to reflect the impact of electric vehicles.

1000

Commodity Lead, Nickel

KPMG in Canada

Contact

Related content

Overview

The second and third quarters of 2017 continued to demonstrate the market uncertainty, however for the first time started to reflect the impending optimism of the impact the electric vehicle (EV) battery market will have on Nickel. The current questions is not if it will have an impact however when. This was reflected by price increases in the second half of the year before pulling back a bit. The year could be summarized as having been impacted by politics and outlook on the Chinese economy, environmental impact and then pull back in the Philippines and easing of restrictions on exports in Indonesia.

2018 is expected to experience continued volatility as supply remains high, however many analysts are forecasting the turn to a deficit in 2018.  In addition the impact and speed at which technology moves cannot be discounted and we may see this with regards to the drive to secure supply of Nickel for EV batteries. Overall it promises to be a very interesting year.

Price outlook

Nickel prices averaged about US$9,612/ton (t) in 2016 — a 23 percent y-o-y decline, caused by concerns of uncertainty in global nickel supply due to ore suspensions in the Philippines and reduced demand for stainless steel in Europe. In Q1 2017, the prices averaged US$10,802/t — a 1.9 percent q-o-q rise, driven by nickel demand from battery makers in the production of electric cars.

In Q2 2017, nickel prices averaged US$10,296/t — a 4.7 percent q-o-q decline, due to new rules in Indonesia, which partially lifted the export ban on shipments of unprocessed nickel ore. Additionally, the Philippines’ government decided to reject the appointment of its Secretary of the Department of Environment and Natural Resources — Regina Lopez — following her order to close 23 mines and 75 mining exploration contracts in June 2016. This decision had put at risk about 10 percent of the global nickel supply and led to decline in prices.

In Q3 2017, nickel prices averaged US$9,568/t — a further 7.1 percent q-o-q decline, due to the high use of Nickel Pig Iron (NPI) in China, which serves as a low-grade substitute for primary nickel. Additionally, the announcement by Australia’s mining company, BHP Billiton, plans to sell its nickel division due to consistent losses, caused a further decline in the prices. The company signaled that despite a US$43 million investment to build a nickel processing plant in Australia, it wanted to rely on its copper business in the long-run as an alternative for electric batteries. The average price is expected to rise to US$10,163/t in 2017 — a 5.7 percent increase y-o-y. The average price is expected to rise at a rate of 15.9 percent q-o-q to US$11,089/t in Q4 2017, contributed by the entry of BHP into nickel sulfate production for lithium-ion batteries, which are used in electric vehicles.

Long-term nickel prices are expected to increase at a compound annual growth rate (CAGR) of 9.9 percent, from US$10,163/t in 2017 to US$14,815/t in 2021. Nickel consumption growth will be supported by commercial construction projects and automobile production in China, along with demand for general electrical equipment in the US. Increased supply of durable consumer goods and nickel non-stainless steel applications in Europe, along with uncertainty around Brexit negotiations could partially offset the growth in prices during the forecast period (2017–2021F).

Figure 1: Nickel price trends (2015–2021F)*

Source(s): Capital IQ consensus prices; BMO Capital markets — Q3/17 mining update: rolling in the deep (value), via Thomson Research; accessed November 2017
*The consensus price figures used the following conversion: 1t = 2204.624lbs.

Supply and demand

Mined nickel supply

  • In 2016, global nickel mine production declined 3.2 percent y-o-y to 1,987 kilo tons (kt) due to reduced production in Russia and the Philippines, partially offset by increased output from Indonesia. In Q1 2017, the production declined marginally by 0.8 percent y-o-y to 462kt. This was due to the 51 percent fall in the nickel ore output in the Philippines as a result of rains and suspension of mine operations.
  • In Q2 2017, global nickel mine production recovered sharply, increasing 10.4 percent y-o-y. Growth was driven by a substantial rise in production in Indonesia and the Philippines. In the Philippines, Regina Lopez was dropped from her position on 2 May 2017, post her order to close 23 mines that led to an increase in production. However, the new environment minister, Roy Cimatu, stated that the ban on the open-pit mines would not be lifted and the President suggested imposing further taxes on the industry players to assist communities that were affected by the operations. This could lead to a decline in nickel production in the coming quarters.
  • In Q3 2017, global nickel mine production was negatively impacted with the closure of Canadian mining company, First Quantum Minerals’ Ravensthorpe nickel mine, due to its high cost of maintenance and low nickel market conditions.
  • Long-term global nickel mine production is expected to increase at a rate of 2.4 percent from 1,942kt in 2017 to 2,139kt in 2021, due to the expected increase in production from Indonesia’s low-grade nickel, along with the collaboration of Norilsk and German automobile company, BASF, to supply nickel for electric batteries. Additionally, BHP’s Nickel West division expects an increase of 100kt in nickel mine production by 2023, due to the increase in the shipment of nickel to battery manufacturers. The market balance is expected to decline at a rate of 53.3 percent from -42kt in 2017 to -221kt in 2021, as most of the mined nickel supply would come from low-purity grades, while the demand for nickel will shift to electric batteries that requires high-purity grades. Additionally, there would be limited potential to increase the supply of high-purity nickel for batteries, since the current low nickel prices would not support the high-purity nickel production expansion requirements.

Figure 2: Global nickel mine production, 2015–2021F

Source: BMO Capital markets — Q3/17 mining update: rolling in the deep (value), via Thomson Research, accessed November 2017

Refined nickel supply

  • In 2016, global refined nickel production decreased 4.9 percent y-o-y to 1,153kt, owing to the fall in Russia’s refined nickel production, such as decommission of the Norilsk nickel plant, partially offset by the increase in supply from Indonesia and New Caledonia. In January 2017, a new legislation was passed in Indonesia that requires nickel miners to increase their smelting capacity by 30 percent to process low-grade nickel ore. This resulted in Indonesia being the top supplier of ferronickel at about 232kt in Q1 2017, an increase of 106 percent y-o-y.
  • In 2017, global refined nickel production is estimated to be about 1,086kt, decreasing by about 6 percent y-o-y, due to the strict regulations against mining companies in the Philippines. Additionally, the proposal by the Philippines President to impose further taxes on mining companies, as a step forward in the country’s environmental audit, could put further pressure on refined nickel production.
  • Long-term global refined nickel production is expected to increase at a CAGR of 2.2 percent from 1,086kt in 2017 to 1,186kt in 2021, driven by the production of laterite ore and NPI in Indonesia, which could be offset by the supply shortage in electric vehicle batteries. Additionally, existing production strategies of shifting from nickel cathode refining to nickel sulfate refining may not provide a long-term solution, due to its high cost on dissolving high-purity nickel powders and briquettes. Political instability in the Philippines and Indonesia, economic shortcomings such as power outage, along with natural calamities such as flash floods, which damage the production site, may partially offset the pace of growth during the forecast period (2017–2021F).

Figure 3: Global refined nickel production, 2015–2021F

Source: BMO Capital markets — Q3/17 mining update: rolling in the deep (value), via Thomson Research; accessed November 2017

Demand

  • In 2016, global nickel consumption increased 7.9 percent y-o-y to 1,993kt. This growth was supported by recovery in stainless steel production in China. The country 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 Q2 2017, global nickel consumption increased 3.2 percent y-o-y, driven by stronger consumption in South Africa, the US, India and Japan. The demand for battery manufacturers and automobile companies contributed to the global nickel consumption. In June 2017, the Russian mining company Norilsk collaborated with German automobile company BASF, to provide nickel for electric batteries. In Q3 2017, the global consumption was positively impacted by the increase in NPI production in China and usage of nickel in electric car batteries.
  • Long-term global nickel consumption is expected to increase at a CAGR of 3.9 percent, from 2,057kt in 2017 to 2,396kt in 2021. During the forecast period (2017–2021F), the global demand for nickel is expected to be positive, due to demand by electric car battery industries in automotive production. Additionally, construction spending on residential and infrastructure investments in the US and Europe is expected to positively impact the demand. Despite the increased demand for nickel, current low-grade nickel production and market volatility due to environmental concerns continue to affect the global nickel prices. In 2018, producers are expected to cut operations, as they would be operating at 25-30 percent losses. Thus, the prices are expected to start to rebound at a modest pace in 2020.

Figure 4: Global nickel consumption, 2015–2021F

Source: BMO Capital markets — Q3/17 mining update: rolling in the deep (value), via Thomson Research; accessed November 2017

Key developments

Ownership changes

The total value of nickel deals decreased from US$48.25 million in Q2 2017 to US$14.32 million in Q3 2017. However, the total number of deals increased from six in Q2 2017 to eight in Q3 2017. Hence, the average deal value* decreased from US$8 million in Q2 2017 to US$1.8 million in Q3 2017.

Two high-value nickel acquisitions took place in Q2 2017. These include:

  • On 3 April 2017, China-based Gemstone 101 Ltd announced its 11.2 percent stake in Cudeco Ltd, a copper and nickel ore mine operator based in Australia, for a value of US$16.78 million (AU$22 million)  in the form of convertible notes and options. Through this deal, Gemstone aims to expand its portfolio in mining and natural resources, leveraging Cudeco’s Rocklands copper project and future potential markets in nickel.
  • On 8 May 2017, British Virgin Islands-based Hua Xing Global Limited announced to acquire 100 percent stake in Horeb Mounting Mining Co Ltd, a Myanmar-based nickel and copper operator, for a value of US$14.2 million.

Figure 5: M&A deal number and valuations, Q2 2017 and Q3 2017*

Source: MergerMarket and Thomson One accessed November 2017

*All deals with only disclosed values during Q2 2017 and Q3 2017 have been included. The deal list covers deals including both nickel and copper.

Table 1: Nickel deals announced in Q2 2017 and Q3 2017
Date announced
Target
Acquirer Status Value of transaction (US$ million) Stake (%)
03-Apr-17
CuDeco Ltd Gemstone 101 Ltd Announced  16.78 11.24
12-Apr-17
Chi FengJin Jian Copper Co Tongling Nonferrous Metals Grp Announced 2.64 3.00
27-Apr-17
Seven GoldLamp Mining Co Ltd Hua Xing Global Ltd Announced 8.13 NA
08-May-17
HorebMounting Mining Co Ltd Hua Xing Global Ltd Announced 14.20 100.00
24-May-17
TheBawdwin Top End Minerals Ltd Intended 1.50 85.00
14-Jun-17
LosCalatos Holdings Ltd CD Capital Natural Resources Announced 5.00 49.00
04-Jul-17
HeronResources Ltd Castlelake LP Completed 2.46 9.95
05-Jul-17
1121844 BcLtd Rhys Resources Ltd Announced
4.54 100.00
21-Jul-17
TotalMinerals Pty Ltd Castillo Copper Ltd Completed 0.97 100.00
21-Aug-17
Cobalt Power Grp Inc Hochschild Mining Hldg Ltd Completed 0.51 9.47
24-Aug-17
Total IronPty Ltd Castillo Copper Ltd Completed 0.46 100.00
30-Aug-17
GlobalExpl Tech Pty Ltd Metallum Ltd Completed 2.62 100.00
04-Sep-17
WA NickelPty Ltd Estrella Resources Ltd Announced 0.73 NA
21-Sep-17
Liaz PtyLtd Longford Resources Ltd Completed 2.03 100.00

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

References

Price outlook: Consensus prices from Capital IQ; BMO Capital markets — Q3/17 mining update: rolling in the deep (value), via Thomson Research; Shine could be returning to nickel, 21 June 2017, Financial Times website; Commodity markets outlook, (PDF 996 KB) 20 October 2017, World Bank website; Nickel prices nosedive on easing supply woes, 6 June 2017, Economic Times website; accessed November 2017


Mined nickel supply: Resources and Energy Quarterly, Bureau of Resources & Energy Economics (BREE), Australian Government, June quarter 2017, September quarter 2017; Deutsche Bank Markets Research: The nickel discourse: A contrarian view , via Thomson Research; Ravensthorpe nickel mine to close due to low market prices, 10 August 2017, Australian Broadcasting Corporation website; BHP may accelerate nickel sulphate expansion to meet battery demand, 9 October 2017, Financial Review website; Electric cars set world's nickel miners on new course, 31 October 2017, Reuters website; accessed November 2017


Refined nickel supply: Resources and Energy Quarterly, Bureau of Resources & Energy Economics (BREE), Australian Government, June quarter 2017, September quarter 2017; BMO Capital markets — Q3/17 mining update: rolling in the deep (value), via Thomson Research; Nickel prices plummet as Indonesia eases export ban, Mining website; Nickel prices threatened by potential export lift from Indonesia, Philippines, 12 May 2017, Financial Review website; accessed November 2017

 

Demand: Resources and Energy Quarterly, Bureau of Resources & Energy Economics (BREE), Australian Government, June quarter 2017, September quarter 2017; BMO Capital markets — Q3/17 mining update: rolling in the deep (value), via Thomson Research; Commodity markets outlook (PDF 996 KB), 20 October 2017, World Bank website; Electric cars set world's nickel miners on new course, 31 October 2017, Reuters website; accessed November 2017


Ownership changes: MergerMarket and Thomson One; accessed November 2017; The exchange rate used was US$1 = AU$1.31044 (as on 2 April 2017); *Average deal value is the total value of deals divided by total number of deals for a particular quarter.

 

Table 1: MergerMarket and Thomson One; accessed November 2017

Connect with us

 

Request for proposal

 

Submit