“Copper and Nickel Supply Side Economics Make Strong Case for Titanium”
Rob Henson
Manager, Business Development
VSMPO Tirus US
Steven Hancock
Market Analyst
TiRus International SA
Abstract
Increasing population growth and urbanization is driving demand for potable water, electricity, waste water
treatment, refrigeration and air conditioning. All of these industrial processes have historically depended on
copper and nickel alloys for reliable process equipment, whereas in the case of electrical power generation and
distribution there is no alternative to copper. The resulting strong demand projections for copper and nickel come
just at a time when mine yields are declining due to depth limitations and processes are becoming more expensive
due to increased energy consumption per ton of produced metal.
The growing stress on the supply side of these commodity metals is impacting on the economics of material
selection and titanium will be shown to be an attractive alternative for many applications within these industrial
processes. Our paper will explore the supply side economics of copper and nickel production, including ore
reserves, mine development, extraction processes and analyst projections, to show the price impact these
developments could have.
Global Population Growth and Urbanisation
In 1960, the world’s population consisted of 3 billion people, one billion in the industrialised world and two billion
in developing countries. In the subsequent half century industrialised countries have seen modest population
growth but the developing world has grown threefold. The rate of growth however, continues to decrease
especially in Asia as people become wealthier, more educated and have smaller families. Some projections show
the world’s population topping out at around 10 billion by the middle of the century. However, pressure on
resources and the environment as a result of population growth, are compounded by an alarming rate of
urbanisation: by 2050, 64% of the world’s developing population will live in cities in comparison to just under 50%
today and only 18% in 1950. Both phenomena result in higher demand for resources and infrastructure:
population growth through sheer numbers and urbanization through higher consumption per capita. As a result,
continued economic growth in the developing world will necessitate compound growth in resource extraction and
infrastructure construction.
Global Population (billion) & Growth (%)
10
2.5%
8
2.0%
6
1.5%
4
1.0%
2
0.5%
0
0.0%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
1
Industrialised
Developing
Growth Rate
Global Economic Growth
The industrialisation of the developed world was facilitated by the availability of the raw materials and fossil fuels
and simplified by scant regard for environmental impacts. However, real concerns are now emerging over the
sustainability of resource extraction at current growth rates. Inevitably, mine yields for many commodities are
declining as deposits are being depleted, copper and nickel being the two pertinent examples discussed in the
current paper. Also, environmentally unfriendly techniques of extraction and refinement are becoming
unacceptable with the deterioration in community health, water and air quality levels.
Since the 2009 recession, global economic growth has stabilised at around 4.5% but includes a wide spread
between the growing developing economies lead by China (8.5%) and stagnant developed economies of Europe
(2%). However, in the light of both declining yields from resource extraction and environmental impact concerns,
the sustainability of continued economic growth at current rates is questionable at least while pressure on supply
side economics is undeniable. Medium and long term growth will be largely dependent on emerging technologies
for clean, efficient and sustainable processing of resources.
15.0%
Forcast Economic Growth (%)
10.0%
China, 8.5%
India, 7.0%
5.0%
ME&NA, 4.6%
CIS, 4.0%
USA, 2.9%
EU, 2.0%
0.0%
-5.0%
2006
2008
2010
2012
2014
2016
2018
2
World Net Electricity Generation
The International Energy Agency estimates that 19% of the world's population did not have access to electricity in
3
2010 and 57% of the African population remains without access to electricity . In 2010, OECD and non-OECD
1
2
United Nations, World Population Prospects: The 2012 Revision
IMF 5 year forecast: April 2013 (growth at constant prices)
countries each generated half the net electricity produced globally but by 2050, current non-OECD countries could
be generating twice as much as the OECD. To achieve this, developing countries will need to make massive
investments in all forms of electricity generation. For example, the World Nuclear Association predicts that China
has almost 30 nuclear reactors planned to give more than a three-fold increase in nuclear capacity by 2020 and is
4
aiming for 150 GWe by 2030 and considerably more by 2050 . New capacity will also be required in developed
countries as under-investment has meant that a large proportion of operating plants are reaching the end of their
useful life. So whilst total generation will increase in parallel with demand, growth in the market for new
installations and infrastructure may see a step change in the medium term.
Net Electricity Generation (trillion kWh) & Growth (%)
45
4.0%
40
3.5%
35
3.0%
30
2.5%
25
2.0%
20
1.5%
15
10
1.0%
5
0.5%
0
0.0%
2005
2010
2015
OECD
2020
2025
non-OECD
2030
2035
Growth Rate
2040
5
Demand for Desalination
Water and energy are inextricably linked with 90% of global generation being water intensive and more that 15%
of all water withdrawals going to energy production. Choices made in one domain have direct and indirect
consequences on the other and both are essential for human well-being so economic development is not possible
without sufficient supplies of both. UNESCO is projecting global water demand in terms of withdrawals to increase
by some 55% by 2050. With 20% of the world’s population currently living in areas of high water stress, that
6
number could increase to 40% by 2050. China, India and the Middle East will account for around 60% of the
increase in demand over the next 20 years and with water scarcity already a major issue, water management will
be absolutely critical to enabling continued economic development in these countries. Water and energy
infrastructure and technologies with inherent synergies for co-production can minimise trade-offs and will play an
essential role. Desalination through combined heat and power plants is one such example of integrated planning
and will become far more common, if not essential in the future.
7
The long term growth in desalination market is estimated by GWI at 9% CAGR with the Middle East continuing to
be the main demand region but with China and India become increasingly important in the medium term. For
example, it’s likely that China’s South-North water transfer scheme will need to be complimented by seawater
desalination to ensure year round supply. Industrial desalination will also become increasingly important as
domestic and industrial demand compete for limited resources.
3
International Energy Agency – Global Energy Outlook 2013
World Nuclear Association – Country profile: China
5
Energy Information Administration – International Energy Outlook 2013
6
UN World Water Development Report 2014, Volume 1 – World Water Assessment Programme
7
GWI Desaldata.com forecast webinar June 2013 – Christopher Gasson
4
16
New Desalination Capacity (million m3/day)
14
12
Other
10
Europe
8
Americas
6
Asia South Pacific
Middle East and Africa
4
2
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
8
Demand for Corrosion Resistant Metals
Since the majority of the growth in population is taking place in underdeveloped regions of the world the
infrastructure to support this population is not in place. Potable water is scarce, water for irrigation may not be
available and the power grid will have to be built from the ground up. Additionally, sanitation systems and water
reclamation systems are often non-existent. To provide an acceptable standard of living for these growing
populations a tremendous investment in infrastructure will be required.
The impact of population growth on the demand for specialty metals has been well documented and reported by
9
many authors . Essentially, copper for electrical power generation and distribution, copper and nickel for alloy
production will also create demand for titanium products. While the demand for finished goods will be significant
the focus of the current paper is the impact this demand will have on the supply side of the copper and nickel
industries.
Increasing demand for copper and nickel alloys have driven large investment in mines and processing plants
globally. However, the quality of these new mines has been rapidly declining over the last 25 years and production
costs have skyrocketed as a result. Understanding the facts behind this increased production cost will allow
projections on future comparative prices for copper, nickel and alloys thereof.
The Status Quo
The markets for traditional corrosion resistant materials (copper, copper-nickel and stainless steel) are facing some
important supply side constraints that could potentially lead to price rises, improving the economics of substitute
materials. For example, copper supply is strained as resources become scarce and production cost increases. Nickel
market dynamics could be in for some turmoil due to export restrictions imposed by Indonesia on laterite ore.
Both copper and nickel mines have shown declining yields and growing energy costs translate into increased cost
of production.
While prices have declined recently, most analysts see this this as temporary due mainly to slowing demand from
China and the US Federal Reserve’s plan to reduce their program of bond purchases. In all likelihood the above
mentioned constraints on supply could begin to take effect as early as next year. This paper will investigate these
constraints in more detail and suggest what impact they might have on bolstering the market for alternative
materials such as titanium.
8
9
GWI Desaldata.com - new contracted capacity in year of contract
References ???
Global Copper Reserves
The US Geological Survey estimate current mining operations of conventional copper hold reserves of around
690million MT, most of which is held in the Andes Mountains of South America. In total, known resources could
amount to 1.8billion MT some of which has already been exploited.
10
Global Copper Production
Current mining operations extract just over 16million MT of contained copper per year with global copper demand
for semi-finished products estimated at around 25million MT. 5million MT of that is recycled as directly melted
high grade copper scrap and around 4million MT of low grade scrape passes back into smelting and refining
operations. Chile mines around one third of the world’s copper some of which is further refined but China has
ramped up smelting and refining over the last 10 years to become the by far the world’s largest copper producer.
20
OTHERS
10
USA
PERU
CHINA
5
15
15
10
10
5
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Refined (mil MT)
OTHERS
CHILE
-
20
OTHERS
RUSSIA
CHILE
JAPAN
CHINA
5
-
RUSSIA
USA
JAPAN
CHILE
CHINA
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
15
Smelted (mil MT)
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Mined (mil MT)
20
11
Assuming copper demand grows at least as fast as that of global economy (a conservative estimate), it could
double over the next 20 years but whether or not supply can meet this demand at current prices is not as certain.
Despite growth in copper production, supply is becoming constrained by a number of difficulties in the production
cycle, namely:
•
•
•
10
11
CapEx costs are escalating due to declining ore grades so larger scale operations need to be developed.
Rising energy costs translate directly into higher production costs.
Greater political risks and infrastructure challenges are being faced as a result of more remote locations.
US Geological Survey 2014
US Geological Survey 2014
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Copper Grades (% Cu)
1985
1990
1995
2000
2005
2010
2015
2020
2025
Industry Head Grade Trends (Weighted Paid Copper) - Oracle Mining Corp / Brook Hunt
12
Average Grades for Copper Industry - AQM Copper
In addition, skills and equipment shortage, smaller areas available for exploration, lengthy and difficult permitting
processes, environmental concerns, social unrest and natural disasters have all been contributing factors to
13
escalating production costs .
86%
84%
82%
80%
78%
76%
74%
72%
70%
Copper Mine and Refinery Capacity Utilisation (%)
Mine Capacity Utilisation
Refinery Capacity Utilisation
2009
2010
2011
2012
2013
14
Copper Supply and Demand
Although output of refined copper grew in 2013 due to recovery from previous production constraints, the real
copper supply deficit, adjusted for Chinese bonded stock changes, grew to 450’000 MT compared to a surplus of
15
300’000MT in 2012. This amounts to around 2% of demand . Although there is enough material in stock around
the world to cover this deficit, the constraints to new capacity coming online in the future is of greater concern.
Since 1900, copper demand has grown at a compound annual growth rate of 3.4% until today, with the global
average per capita use rising from 2kg to 3kg per person over the last 50 years. Since two thirds of all end use
applications are for electrical components and construction, economic growth and development translates
inevitably into copper demand. For this reason it’s difficult to see a scenario where growth in copper demand
doesn’t at least match that of regional economic growth. With China already accounting for 60% of primary copper
demand and their long term economic growth expected to remain above 6% for at least the next 20 years, it is
highly likely that the business case for substitute materials will improve.
12
Oracle Mining Corp, AQM Copper, Rio Tinto
Mining.com - http://www.mining.com/web/global-copper-production-under-stress/
14
International Copper Study Group – press release March 2014
15
International Copper Study Group – including seasonal and Chinese bonded stock adjustments
13
6%
12%
9%
13%
Copper Demand by Region
Copper Demand by Product
Copper Demand by Sector
33%
14%
16%
13%
20%
60%
72%
32%
Electrical Products
Construction
Industrial Machinery
Transport
Consumer Products
Asia
Europe
Americas
Other
Wire Rod
Cake / Slab
Billet
45
16
Copper Supply and Demand (million MT)
Mine Production
Refined Production
Refined Usage
Demand assuming 3% CAGR
40
35
30
25
20
15
10
5
1960
1970
1980
1990
2000
2010
2020
2030
17
Global Nickel Reserves
The US Geological Survey estimate current nickel mining operations hold reserves of around 74million MT with
Australia and New Caledonia holding the largest share. In total, known resources could amount to 130million MT.
18
16
US Geological Survey
International Copper Study Group Statistical Yearbook 2013
18
US Geological Survey
17
Indonesia Export Ban
The global nickel market was rocked in January this year when the government of Indonesia made good on the
long standing threat to restrict export of unprocessed nickel laterite ore. Chinese producers of stainless steel have
come to rely on this ore supply to produce the nickel pig iron as an alternative to refined nickel for stainless steel
production.
Nickel pig iron (NPI) is a low grade ferronickel invented in China as a cheaper alternative to pure nickel for the
19
production of stainless steel . The production process of nickel pig iron utilizes laterite nickel ores instead of pure
nickel sold on the world market. The alternative was developed as a response to high price of pure nickel and this
cheaper substitute for pure nickel influences the price of nickel on the world market by lowering the demand in
certain applications, the most important being the production of stainless steel, representing about two thirds of
nickel use.
Nickel pig iron is composed of low-grade nickel ore, coking coal, and a mixture of gravel and sand as an aggregate.
This mixture is heated in either a blast furnace or an electric arc furnace depending on the desired grade.
Impurities are then removed via smelting and sintering processes and the resulting nickel pig iron contains 4 – 13%
pure nickel.
The export ban for unprocessed ore is a game changer for the nickel industry in that stainless steel producers in
China which account for 50% of the global production will now be forced to use refined nickel. According to
Macquarie Group if the ban remains in place beyond the July 2014 presidential election in Indosesia the nickel
20
market will see massive deficits and a resulting tightness of supply similar to that of 2006 and 2007 .
China and Nickel Pig Iron
Eramet, a French nickel and manganese producer reported that despite a 5% increase in global stainless
steel production, LME nickel prices fell 14% on average 2013 as compared with pricing in 2012. In the
second half of 2013 nickel prices fell further as the production of nickel pig iron in China using ore
imports from Indonesia and the Philippines has nearly tripled in just three years and now totals almost a
quarter of global supply of nickel.
On Feb. 21, Eramet announced that the deteriorating nickel market and short-term outlook for nickel
prices means that they are putting off a final investment decision on its flagship Weda Bay nickel project
in Indonesia. According to Scotiabank’s Patricia Mohr “The nickel market is different market today than
it was five years ago, mainly due to the production of nickel pig iron in China, where technology has
been honed to upgrade the ore to make nickel pig iron.” But the commodities specialist believes that
the outlook for nickel prices is probably brightening with the implementation of Indonesia’s ban in
January. She predicts that by the second half of 2014, “China will have used up its inventories of ore
from Indonesia that it can use to operate nickel pig iron plants and nickel prices will start to firm.”
While there is not universal agreement about how quickly Chinese producers will exhaust their supply of
stockpiled ore there is a consensus that if the export ban remains in place nickel prices will continue to
firm up as China reverts to the import of refined nickel to meet its needs. Whether the stock piles are
consumed by mid-year or last until year’s end the demand for those nickel units will have to be met by
import of refined nickel as China’s needs exceed the capacity for production of refined nickel in country.
19
20
Wikipedia
Financial Times, 4/10/2014 Nickel Jumps Above $17,000…
Raymond Goldie of Salman Partners estimates that Western inventories of nickel will drop to 100 days’
of consumption some time in 2016. “Once inventories have hit that pinch point,” he adds, “we expect
that nickel prices could rise sharply to the double-digit level.” While prices will remain flat until 2016, he
expects the spike will likely come in 2017. Andrew Mitchell, principal nickel analyst at Wood Mackenzie
in London, expects nickel prices will to continue to climb and expects another 25% increase in price
going into 2016. Mitchell points out that last year production of nickel in nickel pig iron totalled 490,000
tonnes, but anticipates that that number will fall to 450,000 tonnes this year and to 250,000 tonnes in
2015.
Mining and Production
Nickel Mined Products (‘000 MT)
2,000
Nickel Production ('000 MT)
2,000
1,800
1,800
1,600
1,600
1,400
1,200
BRAZIL
1,000
OTHERS
800
400
Norway
Australia
Canada
Japan
200
Russia
AUSTRALIA
600
CANADA
PHILIPPINES
RUSSIA
2009
2008
2007
2006
2005
2004
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
China
-
INDONESIA
-
2003
200
2002
400
2001
600
2000
800
2011
NEWCALEDONIA
1999
1,000
OTHER
1998
1,200
2010
1,400
21
Nickel Supply and Demand
Primary Ni Production ('000 MT)
1800
1600
1600
1400
1400
Oceania
1200
1000
1200
Europe
800
600
Asia
US Geological Survey
International Nickel Study Group
2012
America
2011
2012
2011
Africa
0
2010
200
America
2010
2007
2008
Africa
0
2009
200
Asia
400
2009
400
2008
600
22
Europe
1000
800
21
Ni Consumption ('000 MT)
2007
1800
22
Distribution of Nickel Ore Raw Materials
Distribution of Nickel Raw Materials (million MT)
Ore
400
300
200
100
-
Laterite ore
Concentrate
Ores and
concentrates
23
Stainless Steel Production
Stainless Steel Production (million MT)
70%
SS Production Year on Year Growth (%)
China
Rest of the World
60%
35
50%
30
40%
China &
Central
The
Eastern
Americas
Europe
Asia
20%
10%
0%
2013e
2012
2011
2010
2009
2008
2007
2006
-20%
2005
2013e
2012
2011
2010
-10%
2009
2008
2005
2004
2003
2002
2001
0
2007
5
2006
without
China
Western
Europe &
Africa
10
2004
15
30%
2003
20
2002
25
2001
40
China Stainless Steel Production
According to Stainless Steel World, SMI GmbH has conducted an in-depth analysis of the Chinese stainless steel
industry during the past three months – Chinese producers has melted more than 20 million tonnes (MT) of
stainless steel which also catapulted the global melt production to over 40MT. Chinese production has been
accounted for 50.5 % of the global output in 2013.
The total stainless crude production climbed to 20.5MT in 2013 (up 17 % from 17.5MT in 2012) and finished
product output reached 18MT(up 16 % from 15.5MT in 2012). Production volumes of more than 100 Chinese
plants (including around 60 with own melting) were aggregated and all double-counting was eliminated.
The crude output of the major state owned and foreign invested producers (TISCO, Baosteel, LISCO, ZPSS, JISCO,
Dongbei) increased by 11 % in 2013. Private producers contributed to most of the growth: their combined crude
production rose by 24 % in 2013.
23
24
International Nickel Study Group
International Stainless Steel Forum
24
The biggest increase came from Tsingshan Group which already is the second largest producer of stainless steel in
China behind the state owned giant TISCO. Eight producers were melting more than 1MT in 2013, including
25
newcomer Beihai Chengde which started production in 2012 in southern Guangxi Province.
The 2013 melt production of 20.5MT was split into the following grades:
•
•
•
200 series incl. CrMn steels 31 %
300 series 50 %
400 series 19 %
Nickel Consumption
Nickel Consumptions by Source Product
Nickel Consumption by End-use Product
3.9%
4.5%
6.8%
10.4%
28.3%
10.9%
9.8%
15.6%
16.2%
Other Electrolytic
Ferronickel
Nickel pig iron
Pellets, Powders, Salts, Ni Oxide
Premium Electrolytic NI
Briquettes
9.9%
18.6%
HPAL versus Heap Leach Project Cost
Parameter
Nickel Production (LOM)
Cobalt Production (LOM)
Capital Cost
Capital Intensity
Cash Cost (exclude by-products)
Cash Cost (include by-products)
NPV (10% real, non geared)
IRR (real, post tax)
Capital Payback (from free cash)
25
Stainless Steel
Electroplating
Nickel Alloy
Other
Other Steel
Foundry
26
27
Unit
tpa
tpa
US$m
US$/lb Ni
US$/lb Ni
US$/lb Ni
US$m
%
Years
Stainless Steel World, 10/4/2014
International Nickel Study Group – data for 2011
27
Malachite Process Consulting, Wedderburn, 2010
26
65.1%
HPAL
55,700
4,100
$3,750m
$30.5/lb
$4.59/lb
$3.86/lb
($2,160)m
1.60%
N/A
HL
32,800
640
$950m
$13.1/lb
$3.58/lb
$3.39/lb
$220m
17%
7 years
Declining Ore Grades for Copper and Nickel
Nickel Grade (% Ni dry 12MMA)
3
2.9
2.8
2.7
2.6
2.5
2.4
2.3
2.2
2000
2005
2010
Average grade of nickel saprolite ore mined in New Caledonia Macquarie Research / Brook Hunt
28
High Pressure Acid Leaching of Ni Laterite
The application of pressure acid leach (PAL) and pressure oxidation technology to the treatment of metal ores has
more than a 40 year history of successful application. The Moa Bay processing plant built in the late 1950’s utilizes
PAL and steam agitation to treat nickel/cobalt laterite ores. This portion of the plant is very similar to processes in
use and under construction today. However, metal recovery and refining options do vary considerably from site to
site.
Laterite Ni/Co ores are abundant and may contain as much as 70% of the world’s nickel reserves. While run of
mine nickel grades vary widely the ores can be upgraded by grinding, washing and sizing. The PAL process and
selective precipitation are effective for producing mixed Ni/Co intermediates from these low grade deposits. As
known nickel sulphide ore bodies are rapidly being exhausted the industry must rely on laterite deposits for future
supply.
The following list outlines some recent project and associated problems:
•
•
•
•
•
28
Bulong was never large enough to generate positive cash flow and a heavy debt burden doomed the
project early on. The plant has not operated since 2002 and is currently owned by Norilsk as a result of
the LionOre acquisition in 2007.
Cawse Nickel like Bulong was too small to stand on its own and failed to generate cash for expansion. A
large portion of capital was invested in the SX/EW plant that never did produce high quality nickel, a plan
to utilize the refinery for EMD has never gotten off the ground.
Murrin Murrin was largely designed for success and has weathered the storm. A design choice by the
original EPC contractor on the flash vessels proved disastrous and the project was significantly delayed
while replacements were built. Moreover, the replacement flash vessel design was constrained by
existing equipment and a full 20% reduction in autoclave throughput was unavoidable.
Goro Project in New Caledonia suffered badly due to cost overruns and major revisions to the process
flow sheet during construction. The plant is now operating but continues to suffer from compromises
made in an effort to reduce capital costs.
Ravensthorpe Nickel was constructed by BHP Billiton (BHPB) beginning in 2004 with an initial capital
estimate of $1.2B, construction took 4 years and the plant was commissioned in 2008. Final capital costs
were reported to be $2.4B and still the plant produced only 35% of design volume. BHPB shuttered the
plant in 2009, took a write down of $3.6B and sold the facility to First Quantum Minerals for a price
Macquire Resarch / Brook Hunt
•
•
reported to be less than 10% of the total investment. First Quantum has made modifications to the
process plant and is operating today at an annual nickel production rate of 39,000 MT/yr.
Coral Bay was built with a simplified flow sheet which produces a Ni/Co sulphide product which is further
processed at a smelter in Japan. The absence of an acid plant and metal refinery at the mine site greatly
reduces capital cost and allowed production ramp up to reach name plate capacity in only 14 months.
Final capital cost for the project came in within 10% of budget.
Ambatovy required five years and $4.5B to construct a plant for the production of 60,000 MT/yr refined
nickel. The plant delivered the first nickel in late 2012 and continues to push toward design capacity.
High Pressure Acid Leach (HPAL) Processing - HPAL Project Costs vs Heap Leach
Parameter
Nickel Production (LOM)
Cobalt Production (LOM)
Capital Cost
Capital Intensity
Cash Cost (exclude by-products)
Cash Cost (include by-products)
NPV (10% real, non geared)
IRR (real, post tax)
Capital Payback (from free cash)
Unit
tpa
tpa
US$m
US$/lb Ni
US$/lb Ni
US$/lb Ni
US$m
%
Years
29
HPAL
55,700
4,100
$3,750m
$30.5/lb
$4.59/lb
$3.86/lb
($2,160)m
1.60%
N/A
HL
32,800
640
$950m
$13.1/lb
$3.58/lb
$3.39/lb
$220m
17%
7 years
Commodity Prices
Commodity markets and especially major base metals have been affected by two main factors recently:
•
•
Slowing industrial growth in China: this has translated into weaker demand for metals and reduced prices.
The US Federal Reserve’s winding down of stimulus measures (quantitative easing / government bond
purchases): commodity markets are widely thought to have benefitted from liquidity generated by these
measures.
Both of these factors have put downward pressure on previously inflated prices but at the same time have masked
the supply constraints that exist for some commodities, notably copper and nickel. It’s likely that prices will begin
to reflect the supply / demand imbalance more closely in the near term.
35.00
Nickel and Copper Commodity Prices (US$/kg)
LME Nickel
30.00
LME Copper
316 Stainless Flat Coil
25.00
Cupro Nickel 90-10
20.00
Cupro Nickel Scrap 30-70
15.00
10.00
5.00
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
30
29
Malachite Process Consulting, Wedderburn, 2010
Cu-Ni Tube Trade
According to trade data, China exports about half of all copper-nickel tubes and pipes traded around the world.
Quantity and unit values have increased from insignificance in the early 2000’s to current levels with a peak in mid2011. Since then unit values have moderated slightly to their current level of between $11-$12/kg.
Trade Uniti Price (US$/kg)
1,400
2010 onwards by month
Annualised
14
Unit Price (US$/kg)
Trade Quantity (MT/month)
11.27
12
1,200
1,000
10
800
8
600
6
400
4
200
2
Trade Quantity (MT/month)
Chinese exports of Cu-Ni Tubes and Pipes
16
-
0
2000
2005
2010
2011
2012
31
Comparative Prices for Condenser Tubes
Since Titanium is usually an alternative to Copper in desal, the price differential is a driver in the material choice.
The drop in price differential during 2010-11 resulted in the titanium becoming significantly more attractive. Were
the prices of both materials to rise, other technologies such as RO are favoured. Typically, Ti tubes make up 10% of
the tube bundle and are used where corrosion risk is high. Since the density of Ti is half that of brass, if the price of
Ti tubes is less than double that of copper tubes, Ti will be cheaper per meter irrespective of the value associated
with its corrosion resistance.
Comparison of 19.05mm OD condenser tubes of different materials
Comparative cost per meter
Comparative
Alloy Cost
Ti Gr2 = 100%
350%
100%
85%
250%
200%
200%
150%
60%
150%
100%
100%
35%
0.5
4.51
0.711
75%
7.67
8.47
300%
8.95
8.96
1.2
1.2
1.2
Ti Gr2 = 100%
340%
Density
g/cm3
280%
Wall Thickness
mm
50%
30
Ti Gade 2
Al Brass
Al29-4Ci
70-30 Cu/Ni
90-10 Cu/Ni
Ti Gade 2
Al Brass
Al29-4Ci
70-30 Cu/Ni
90-10 Cu/Ni
Ti Gade 2
Al Brass
Al29-4Ci
70-30 Cu/Ni
90-10 Cu/Ni
Ti Gade 2
Al Brass
Al29-4Ci
70-30 Cu/Ni
90-10 Cu/Ni
0%
Metalsprices.com – March 2014
UNComtrade database - HS741122 Pipes & tubes, copper-nickel base alloy or copper-nickel-zinc base alloy
32
VSMPO estimates
31
32
Copper vs Titanium Pricing
The price differential between copper and titanium can be a good indicator of the business case for using titanium
in industrial heat exchange applications since copper-nickel and titanium tubes are to a certain degree
interchangeable. For example, the rising price of copper in 2009/2010 would have helped make the case for
titanium for Ras Azzour and Yanbu 3 desalination plants where all condensers were made entirely from titanium a first for the desalination industry.
LME Copper Cash Official
Ti Gr.1 Slab FOB Rotterdam
Unit Price
Copper versus Titanium Pricing
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
33
Titanium Metal Supply
Having only entered the titanium sponge production market 10 years ago, China has built up a vast sponge
production capability brining global capacity well above demand. Most of the sponge produced in China is destined
for commercial and industrial applications rather than aerospace or medical applications so supply of commercial
grade titanium is reasonably secure for the foreseeable future. This in addition to the proliferation of titanium tube
welding lines around the world is likely to add to the case for titanium tubes as an alternative to incumbent
materials such as copper-nickel.
400
Global Titanium Sponge Capacity (MT)
400
Global Titanium Melting Capacity (MT)
350
350
300
300
250
250
200
200
Russia & CIS
150
150
Europe
100
100
50
50
China
Japan
US
-
2001
2003
2005
2007
2009
2011
2013
2001
2003
2005
2007
2009
2011
2013
34
Conclusion
It is clear that the combined effect of declining head grade at mines and increased energy costs will drive the LME
price of nickel and copper higher over time. Substitution of other materials for construction will alleviate the
33
34
Metalprices.com
Regional Titanium Associations & VSMPO Estimates
demand shortfall in some instances but many of the applications for these commodity metals do not currently
have a substitute such as nickel for jet engine application and copper for electrical power generation. The pressure
for additional tonnage will continue on the supply side and this will result in a steepening price curve.
With regards to the titanium industry, there is a well developed mining industry that is currently shipping 95% of
its production as a mineral product. The potential increase in value to the titanium miners is very attractive if they
ship to a metal production facility, and as only 5% of mined titanium product is reduced to titanium metal in
today’s market there is considerable elasticity in the supply side of the business.
In spite of the advances in nickel pig iron production over the last three years copper-nickel alloys are at a price
disadvantage to titanium products. Furthermore, with regulatory restrictions on exports of non-processed nickel
ore, this advantage for titanium is expected to increase. Increasing production cost for copper and the lack of an
alternative metal in electrical power generation is expected to also widen the cost of ownership in favor of
titanium.
Copper and Nickel Supply Side Economics
Make Strong Case for Titanium
VSMPO-AVISMA Corporation
Rob Henson, Manager, Business Development
Steve Hancock, Market Analyst
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Demand for corrosion resistant materials
• Population
– Inevitable demand on resources
• Economic Growth
– China needs to maintain but moderate growth
• Electricity Generation
– Hand-in-hand with population & economic growth
• Water – Desalination
– Resources are finite and under pressure globally
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Global Population Growth
• 7.1 billion now ~ 10 billion by 2050
World Population
(Billions)
12
10
8
More developed regions
Less developed regions
6
4
2
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Source: United Nations, World Population Prospects: The 2012 Revision
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Global Economic Growth
• China & India moderate while West stabilises
15%
World
GDP Growth
10%
China
8%
7%
5%
0%
4%
3%
2%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-5%
Source: IMF 5 year forecast: April 2013 (growth at constant prices)
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
India
United States
European Union
Middle East and North Africa
CIS
World Net Electricity Generation
• China and India leading capacity expansion
12
10
Trillion kWh
OECD Americas
Forecast CAGR
3.2%
OECD Europe
8
OECD Asia
6
1.3%
4
Middle East & Africa
India & Other Asia
Forecast CAGR
3.5%
2
0
2005
Europe and Euraisa
Forecast CAGR
China
Central and South America
2010
2015
2020
2025
2030
2035
2040
Source: Energy Information Administration – International Energy Outlook 2013
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Demand for Desalination
7
Millions
Capacity (m3/day)
Middle East and Africa
6
4
Europe
3
Other
Asia South Pacific
5
Americas
2
1
-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Online Year
Source: Desaldata Forecast, June 2013
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
The status quo under threat
Primary materials in corrosive environments
• Copper Nickel & Stainless
– Copper supply is strained as resources become
scarce and production cost increases
– Nickel market dynamics could be in for some
turmoil due to export restrictions
– Chinese stainless production is directly linked
with Indonesian laterite ore exports
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Global Copper Reserves & Trade
• Remaining global copper reserves
– 280 Million MT
Arrows showing trade are indicative only
Poland
26mil MT
US,
Canada &
Mexico
87mil MT
Chile &
Peru
266mil MT
Russia &
Kazakh
27mil MT
Congo &
Zambia
40mil MT
China &
Indonesia
58mil MT
Australia
86mil MT
Source: US Geological Survey
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Production or Use (million MT)
Global Copper Production
40,000
Mine Production
Refined Production
Refined Usage
Demand assuming 3% CAGR
35,000
30,000
25,000
20,000
15,000
10,000
5,000
1960
1970
1980
1990
2000
2010
2020
Source: International Copper Study Group
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
2030
Copper Demand & End-use
• China dominates demand
12%
9%
13%
13%
33%
Sector
16%
14%
Product
20%
6%
Region
72%
32%
Electrical Products
Construction
Industrial Machinery
Transport
Consumer Products
Wire Rod
Cake / Slab
Billet
Source: Anglo-American, International Copper Study Group, 2012
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Asia
Europe
Americas
Other
60%
Copper Supply & Demand
• CapEx costs are escalating because:
– Declining ore grades mean larger scale operations for the
same yield
– Newer projects are more often in remote areas with little or
no infrastructure
• Capital intensity for Teck’s Quebrada Blanca’s reported to be
$28,000 USD/MT
• Other factors putting pressure on supply:
– Skills shortage
– lengthy and difficult permitting processes
– environmental concerns
Source: (1) Mining.com
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Copper Supply & Demand
• Difficult road ahead for mining companies:
– Peru
• > 15 projects have been delayed due to social unrest
– Chile
• Power and water shortages
• Environmental groups opposed to new capacity
• Codelco sites lower copper grades and higher energy
prices as reason for increasing production cost
Source: (1) Mining.com
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Global Nickel Reserves & Trade
• Remaining global nickel reserves
– 75 Million MT (estimated 70% are laterite ores)
Arrows showing trade are indicative only
Russia
6.1mil MT
Canada
3.3mil MT
Brazil &
Columbia
8.6mil MT
South Africa,
Madagascar &
Botswana
5.8mil MT
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
China,
Indonesia &
Philippines
8.3mil MT
New
Australia
20mil MT Caledonia
12mil MT
Source: US Geological Survey
The effect of Indonesia’s export ban
•
•
•
78% of Indonesia’s mined nickel products are exported unprocessed
– 90% of that goes to China for conversion to NPI
– China has been stockpiling in anticipation of the ban
Indonesia’s electricity supply could be a challenge for the economic
viability of developing domestic processing.
The Philippines will be watching the Indonesian experiment carefully
Ref: Materials World Feb, 2014
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
China, Nickel Pig Iron & Stainless
•
Chinese stainless steel makers have increasingly used NPI as a cheaper
alternative to pure Ni
•
China’s production of NPI using ore form Philippines and Indonesia has nearly
tripled in three years and is now ¼ of global supply
•
China has been stockpiling laterite ore in anticipation of the Indonesian ban on
exports but this will be used up by the end of 2014
•
The question now is whether or not China will carry out planned invest in
plants in Indonesia
•
Nickel price is expected to rise which will bring additional capacity to market
Source: The Northern Miner
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Asia
Source: International Nickel Study Group
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
2012
America
2011
Africa
2010
2012
2011
2010
America
2009
Africa
Europe
2009
Asia
Ni Consumption
2008
Europe
1800
1600
1400
1200
1000
800
600
400
200
0
2007
‘000 MT
Oceania
2008
1800
1600
1400
1200
1000
800
600
400
200
0
Primary Ni Production
2007
‘000 MT
Nickel Supply & Demand
Distribution of Raw Materials
• Indonesian export ban: 72% of exports go to China
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-
Ore
Laterite ore
Concentrate
Ores and concentrates
Other
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Nickel Consumption
Ni Source Product
Ni End-use Product
3.9%
4.5%
6.8%
10.4%
28.3%
10.9%
9.8%
15.6%
9.9%
16.2%
65.1%
18.6%
Other Electrolytic
Ferronickel
Nickel pig iron
Pellets, Powders, Salts, Ni Oxide
Premium Electrolytic NI
Briquettes
Stainless Steel
Electroplating
Nickel Alloy
Other
Other Steel
Foundry
Source: International Ni Study Group, 2011
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Impending Nickel Shortage?
• Long term demand growth 2%pa
3000
Highly Probably Projects
‘000 MT
2500
Existing Supply
2000
620kT
Consumption
1500
1000
500
0
2000
2005
2010
2015
2020
2025
Source: Wood Mackenzie
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
2030
Copper
2025
2020
2015
2010
2005
2000
1995
Nickel Grade (% Ni dry 12MMA)
3
Industry Head Grade Trends (Weighted Paid Copper) Oracle Mining Corp / Brook Hunt
Average Grades for Copper Industry - AQM Copper
1990
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1985
Copper Grade (% Cu)
Declining Grades
Nickel
2.9
2.8
2.7
2.6
2.5
2.4
Average grade of nickel saprolite ore mined in
New Caledonia - Macquarie Research / Brook
Hunt
2.3
2.2
2000
2005
Source: Oracle Mining Corp, AQM Copper
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
2010
Commodity Prices
• Nickel & Copper 1990 to present
35.00
LME Nickel
LME Copper
25.00
316 Stainless Flat Coil
20.00
Cupro Nickel 90-10
Cupro Nickel Scrap 30-70
15.00
10.00
5.00
-
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
$/kg
30.00
Source: Metalprices.com
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Unit Price (US$/kg)
• Chinese export stats
16
14
12
10
8
6
4
2
0
annualized
Trade Quantity (MT/month)
Trade Uniti Price (US$/kg)
2010 onward by month
1,400
11.27 1,200
1,000
800
600
400
200
2000
2005
2010
2011
2012
Source: UNComtrade database - HS741122 Pipes & tubes, copper-nickel base alloy or copper-nickel-zinc base alloy
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
-
Trade Quantity (MT/month)
Cu-Ni Tube Trade
Alloy Comparison for Heat Exchange Tubes
100%
Ti Gade 2
150%
Aluminum Brass
Source: VSMPO estimates
70-30 Cu/Ni
Ti Gade 2
0%
Al29-4Ci
200%
280%
100%
35%
Aluminum Brass
Al29-4Ci
70-30 Cu/Ni
90-10 Cu/Ni
Ti Gade 2
Aluminum Brass
Al29-4Ci
70-30 Cu/Ni
90-10 Cu/Ni
300%
200%
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
400%
Comparative cost / meter
Ti Gr2 = 100%
90-10 Cu/Ni
85%
75%
60%
4.51
8.47
7.67
8.95
8.96
0.5
Ti Gade 2
100%
Comparative alloy cost
Ti Gr2 = 100%
Density
g/cm3
1.2
Aluminum Brass
Al29-4Ci
70-30 Cu/Ni
90-10 Cu/Ni
0.711
1.2
1.2
Wall Thickness
mm
340%
• Comparison for 19.05mm OD Tube
Titanium Metal Supply
• No shortage in Ti sponge & melting capacity
Sponge
400
350
Melting Capacity (MT)
Production Capacity (MT)
400
300
250
200
150
100
50
-
2001 2003 2005 2007 2009 2011 2013
Melting
350
300
China
250
Japan
200
Russia & CIS
150
Europe
100
US
50
-
2001 2003 2005 2007 2009 2011 2013
Source: Regional Titanium Associations, VSMPO
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy
Conclusion
• Increasing energy cost and lower mine grades will result in higher
prices for copper and nickel
• Titanium currently has a price advantage over this materials and
expanded use of titanium is expected
• Additional incentive to specify titanium can be found in:
– Reliability
– Environmental compatibility
– Longevity
– Expanding global production which ensures product availability
Rob Henson, Manager, Business Development
May 19-21, 2014 • Hilton Sorrento Palace, Sorrento, Italy