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NICKEL
OUTLOOKFOR NICKEL
THE OUTLOOK
Is Managing
the recovery
in nickel
a China story
alone?
volatility,
disruption
and expectation
Sean Mulshaw
Sean Mulshaw
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Strictly Private & Confidential
This presentation has been prepared for Scotia Capital Inc. by Wood Mackenzie Limited. The
presentation is intended solely for the benefit of Scotia Capital Inc. and its contents and
conclusions are confidential and may not be disclosed to any other persons or companies
without Wood Mackenzie’s prior written permission.
The information upon which this presentation is based comes from our own experience,
knowledge and databases. The opinions expressed in this presentation are those of Wood
Mackenzie. They have been arrived at following careful consideration and enquiry but we do
not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are
subject to change. We do not accept any liability for your reliance upon them.
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Sean Mulshaw, Senior Nickel Analyst
T: +44 (0)1932 878 042
E: sean.mulshaw@woodmac.com
Sean Mulshaw joined Brook Hunt in 2005 having previously held positions with Roskill, the
Mining Journal and the Royal School of Mines in London.
He has a degree in Geology from the University of Reading and a PhD in Geology from
Imperial College. Sean is a Senior Nickel Analyst and is the co-author of the Nickel Metal
Service and contributes towards the Nickel Industry Cost Service and the Nickel
Intermediates Service.
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Agenda
1
Mid-term outlook
2
Demand driven by China
3
Changes in stainless steel product mix
4
New project ramp up and market oversupply
5
Contribution of NPI
6
Risks
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Nickel market short in 2011 but oversupply from 2012
Nickel prices will move higher before falling to marginal costs level
Balance (kt)
Price ($/lb)
18
120
100
Balance (kt)
60
14
40
20
12
0
2005
-20
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
10
-40
-60
Price ($/lb) $2010
16
80
8
-80
-100
6
Source: Brook Hunt -A Wood Mackenzie Company
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Historic relationship between Ni price and costs
Price floor around 90th percentile - marginal - C1 costs
9th decile costs
Stock days
LME price ($/t)
Avg price Q1-Q3/10
40,000
140
35,000
120
Average stocks
100
25,000
80
20,000
15,000
60
10,000
40
5,000
20
0
Stock days
Price & Costs ($/t)
30,000
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: Brook Hunt -A Wood Mackenzie Company
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Stainless - China to sustain strong post recession recovery
Elsewhere growth reverts to flatter trajectory
4000
Europe
Americas
3500
China
Stainless melt - kt
3000
Asia (excl China)
2500
2000
1500
1000
500
0
Q1/08
Q3/08
Q1/09
Q3/09
Q1/10
Q3/10
Q1/11
Q3/11
Q1/12
Q3/12
Source: Brook Hunt -A Wood Mackenzie Company
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Non-stainless – Superalloys lead the way
Plating and batteries also looking good
250
Alloy Steel
Non-Ferrous Alloys
Plating
Foundry
Other
Contained Ni - kt
200
150
100
50
0
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Source: Brook Hunt -A Wood Mackenzie Company
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Stainless melting utilisation rates - 1
China low by western standards - heading towards 60% by 2012
80%
China
70%
60%
50%
40%
30%
20%
10%
0%
2005
2006
2007
2008
2009
2010
2011
2012
Source: Brook Hunt -A Wood Mackenzie Company
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Stainless melting utilisation rates - 2
Overcapacity in Europe whilst more capacity due in the US
80%
China
Europe
USA
70%
60%
50%
40%
30%
20%
10%
0%
2005
2006
2007
2008
2009
2010
2011
2012
Source: Brook Hunt -A Wood Mackenzie Company
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China - Stainless sector will keep growing
Primary nickel consumption to rise from 350kt in 2010 to 550kt in 2015
By Grade
By Company
3
20
2008
200
16
2012
2
400
18
2010
Stainless melt (Mt)
Stainless melt (Mt)
2.5
1.5
1
0.5
0
300
14
12
10
8
6
Northeast
Huaye
Southwest
Jisco
ZPSS
Wuhang
Lisco
Baosteel
Tsingshan
Tisco
4
2
0
2008 2009 2010 2011 2012 2013 2014 2015
Source: Brook Hunt -A Wood Mackenzie Company
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Chinese primary nickel demand in stainless steel
SOEs cut austenitic ratios, independents cut nickel contents, both cut scrap use
Product mix / scrap ratio
Austenitic Ni content (% Ni)
10%
100%
9%
80%
8%
60%
7%
40%
6%
20%
5%
0%
2005
2006
2007
2008
2009
2010
4%
2005
SOE austenitic
Private austenitic
SOE scrap
Private scrap
2006
2007
SOE
2008
2009
2010
Private
Source: Brook Hunt -A Wood Mackenzie Company
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RoW – Nickel consumption in stainless constrained
Falling austenitic ratio & rising scrap use
85%
World ex China & Russia/CIS
80%
Nickel content
8.8%
Austenitic ratio
8.7%
75%
8.6%
70%
8.5%
65%
8.4%
60%
8.3%
55%
8.2%
50%
8.1%
45%
8.0%
40%
Nickel content
Austenitic & scrap ratios
Scrap ratio
7.9%
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: Brook Hunt -A Wood Mackenzie Company
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Taiwan – Surge in 400 series ferritics since start 2009
Ferritics to stay up whilst 300 austenitics remain range-bound
STAINLESS CR COIL
300
400
45
200
80
40
70
35
60
30
50
25
40
20
30
15
20
10
10
5
0
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10
200 & 400 series - kt
300 series - kt
90
0
Source: TSIIA
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Japan – Increase in ferritic ratio supported by automotives…
..and encouraged by nickel price volatility
Auto output
14,000
50%
400 ratio
45%
12,000
40%
35%
30%
8,000
25%
Ferritic trend pre-06
6,000
20%
Ferritic ratio
Autos (k units)
10,000
15%
4,000
10%
2,000
5%
0
1999
2000
2001
2002
2003
2004
2005 2006
2007
2008
2009
2010
0%
2011
Source: OICA; Brook Hunt -A Wood Mackenzie Company
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USA – Stainless steel product mix changes
400 and 200 series have become more popular since 2006
VOLATILITY
300 ratio
80%
400 ratio
9.00%
70%
200 ratio
8.00%
7.00%
6.00%
50%
5.00%
40%
400 declining
4.00%
30%
200 series
300 and 400 series
60%
3.00%
20%
2.00%
10%
400 picks up
0%
1.00%
0.00%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: AISA; Brook Hunt -A Wood Mackenzie Company
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USA – High nickel prices drive surge in 200 series
16%
Ni price
25
200%
14%
20
10%
15
8%
10
6%
Ni price - $/lb
% 200 series
12%
4%
5
2%
0%
0
Q104 Q304 Q105 Q305 Q106 Q306 Q107 Q307 Q108 Q308 Q109 Q309 Q110
Source: AISA; Brook Hunt -A Wood Mackenzie Company
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Growth in world nickel consumption
Healthy at +5% per year but largely propped up by China
2500
800
Global
China
700
Eur/Jap/US
600
500
1500
400
1000
300
China (kt)
Global-Regional (kt)
2000
200
500
100
0
2007
2008
2009
2010
2011
2012
2013
2014
0
2015
Source: Brook Hunt -A Wood Mackenzie Company
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Recent capital expenditure in the nickel industry is biggest ever
Capital Expenditure (US$M)
14000
12000
10000
8000
6000
4000
2000
20
19
20
20
18
17
20
20
15
16
20
13
14
20
20
20
11
10
12
20
20
09
08
Expansion
20
20
20
07
06
20
Sustaining
20
04
05
20
03
20
20
01
02
20
00
20
20
98
99
19
19
19
97
0
Projects inc. uncommited
Source: Brook Hunt - A Wood Mackenzie Company
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But those new projects are going to add a lot of nickel
Additional 230kt of nickel metal by 2015 from five new facilities alone
250
Ramu 35kt/a
Ravensthorpe 40kt/a
Ni metal - kt
200
Taganito 30kt
Voisey’s Bay 50kt/a
150
NPI ?
100
50
0
2011
2012
Goro
Onca-Puma
2013
Barro Alto
2014
Ambatovy
2015
Koniambo
Source: Brook Hunt -A Wood Mackenzie Company
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HPAL ramp-up schedule – typically below expectations
120%
Addition
Addition of
of second
second line
line taking
taking
capacity
capacity to
to 24kt
24kt from
from 10kt
10kt
% of Capacity
100%
80%
Bulong
Cawse
Murrin
60%
Coral Bay
"Ideal"
40%
20%
0%
1
2
3
4
5
6
7
8
9
10
11
Year
Source:Brook Hunt - A Wood Mackenzie Company
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45% of Chinese Ni production is now NPI
Growth in NPI output of 23% per year since 2007
350
Refined nickel
NPI (Unspecific)
300
NPI (EF)
250
NPI (BF)
?
200
kt
?
150
100
50
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Brook Hunt -A Wood Mackenzie Company
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Chinese NPI consumption by company in 2010
Integrated stainless mills now account for >70% of total NPI demand
Tsingshan
Qingpu/Fu'An
23%
INTEGRATED WITH NPI
Southwest
Jinguang
6%
72%
Yongtong
YongAn/Lianyungang
3%
Wuhang
Desheng
18%
NON-INTEGRATED
ZPSS
Qingpu
13%
28%
Baosteel
Sinosteel
9%
Source: Brook Hunt -A Wood Mackenzie Company
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In 2011, 70% of integrated NPI demand will come from own plants
Huaye and Jisco moving same way; Tsingshan to add third facility
Independents will lose market share and some will close
120
NPI needed from third parties
Contained Ni - kt
100
Integrated NPI production
80
60
40
20
0
2005
2006
2007
2008
2009
2010
2011
Source: Brook Hunt -A Wood Mackenzie Company
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NPI could lose 50-60% of its laterite ore feed
New legislation is likely to curtail Indonesian DSO exports from 2014
3
New Caledonia
Indonesia
Ore imports (Mt)
2.5
Philippines
2
1.5
1
0.5
0
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Source: Chinese customs data
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Avg
Avg 2010
2010 Ni
Ni price
price
$9.89/lb
$9.89/lb
Nickel Industry Country Cost Curve
2010 Flexed Data
C1 Cash Cost ($/lb Ni)
NPI - EAF
10
9
8
7
6
5
NPI - BF
Many NPI plants will stop production if nickel prices fall
Some may switch to other alloys anyway
4
3
2
1
0
-1 0
-2
-3
250
500
750 1000 1250 1500 1750 2000 2250 2500 2750
-4
-5
Cumulative Production (Paid Mlbs Ni)
Source: Brook Hunt -A Wood Mackenzie Company
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Main risks to oversupply:
NPI swing - stronger demand - project delays
2000
Highly Probable Projects
Existing supply
1800
Consumption
kt
1600
1400
1200
1000
2000
2002
2004
2006
2008
2010
2012
2014
Source: Brook Hunt -A Wood Mackenzie Company
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Risk is Very Much on the Supply Side
Next year’s deficit depends on largest supply increase for at least 10 yrs
200
Balance
153
150
Nickel metal - kt
126
100
117
101
80
79
68
50
31
47
39
50
35
25
73
66
49
33 32
24
17
27
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-50
-100
-31
-35
-46
-80
Source: Brook Hunt -A Wood Mackenzie Company
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But not as high as may be perceived from projects alone
2011
2012
Ambatovy
Barro Alto
Cerro Matoso
Fujian Desheng
Goro
Harjavalta
Jinchuan
Niihama
Onca Puma
Vale Sudbury/UK
0
5
10
15
20
25
30
35
40
45
50
Nickel - kt
Source: Brook Hunt -A Wood Mackenzie Company
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Summary
Nickel supply to stay tight in 2011; nickel prices to remain volatile
Looming oversupply and falling prices from 2012
• Large new projects should be ramping up by then
But high prices might be sustained for longer if:
• Chinese stainless steel expansion exceeds current expectations (higher Ni demand)
• NPI cannot swing in to fill the shortfall
• Imminent projects are delayed (lower Ni supply)
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