Roskill: Indonesia to tighten grip on refined nickel supply

Over the next decade, nickel will see demand growth underpinned by stainless steel and Li-ion batteries for the EV market, the latter the new kid on the block. Developments over the course of 2019 have reshaped the industry and impacted the outlook for the next 10 years. Back in September 2019, the Indonesian government confirmed widespread market expectations that it would bring forward its export ban of nickel ores and concentrates to January 2020 (from the scheduled 2022). It did this to incentivise further investment in domestic refining capacity, following a previous ban in 2014 that saw Indonesia become a growing presence in refined nickel and stainless steel production. In Indonesia, further investment in nickel pig iron (NPI) capacity means that by 2029 Indonesia will account for a third of global refined nickel supply, according to Roskill.

London, UNITED KINGDOM


London, UK, May 04, 2020 (GLOBE NEWSWIRE) -- Last year’s announcement sent the LME nickel price spiking to US$18,620/t in early September amid fears of a supply squeeze, but this was not long-lived, with the LME cash price for December averaging at US$13,794/t. With this change in Indonesian export policy, Chinese NPI producers have lost a major source of ores to feed their furnaces. This news comes off the back of a record NPI total of 590kt Ni by Chinese producers in 2019. As a result of the ban, through 2020, Chinese NPI producers will have to process their accumulated stockpiles of ore as well as material at the ports, built up in anticipation of the ban. China will also become even more reliant on ore supply from the Philippines, New Caledonia and Guatemala. In contrast, major additional investment in Indonesian NPI capacity will need to ramp up to serve the stainless steel market, replacing the loss of Chinese NPI. Chinese groups Tsingshan, Jiangsu Delong and Jinchuan are well placed to do so, continuing to ramp up NPI production at their smelters in Indonesia through the year. Despite this, the Indonesian export ban will apply pressure to global nickel supply, in a market that has already experienced several years of deficit.

Refined nickel supply outside of China and Indonesia fared less well in 2019, recording at 2.4% y-o-y decrease for the year. There were falls in Canada, Australia and New Caledonia all linked to production variability and maintenance. This is not a new trend, with yearly falls for supply outside China and Indonesia occurring since 2016. In Australia, nickel supply was down 6% y-o-y following BHP Nickel West undertaking quadrennial maintenance at the Kwinana refinery in Q4 2019. New Caledonia also recorded a drop in supply of almost 20% with decreases in output from all three major producers. In a significant development for New Caledonian refined supply, in early December 2019, Vale announced that it was seeking to exit from its Vale Nouvelle-Calédonie (VNC) operations at Goro. Vale, which owns 95% of the operation, is said to be pushing for an exit due to the plant being unable to meet intended production levels and problems with the associated high-pressure acid leach (HPAL) plant, which could be operated by a company with more HPAL experience.

On the demand side, consumption increased by 4.4% y-o-y in 2019, driven by steady demand from the stainless steel industry. Most of this demand growth has come from Chinese stainless steel mills, as these remain reliant on primary nickel units in the form of NPI. The nickel market continues to be dominated by demand from stainless steel but Roskill expects the share from electric vehicle (EV) batteries, containing higher nickel chemistries, to grow substantially over the next decade. Supplying nickel units for this EV demand will require increased output of battery-grade nickel intermediates from HPAL plants, suitable for use in nickel sulphate production. There are several HPAL plants which are at various stages of development in Indonesia. Crucially for the development of these projects, they received environmental approvals back in January 2020, giving them the green light to proceed with construction.

The nickel market already demonstrates dynamic supply/demand fundamentals, and an additional challenge to the market in 2020 comes from the COVID-19 pandemic, which is already starting to impact the industry. Currently, owing to the fast-moving developments associated with the spread of the virus, uncertainty exists in terms of just how severe the pandemic’s impacts will be.

As is the case with other commodities, COVID-19 is not expected to impact the long-term outlook for nickel and Roskill’s forecast fundamentals remain largely in place for the stainless steel and electric vehicle sectors. Any rebound will see a return to the long-term trend over the course of 2021. Just how much impact the virus has on the nickel market will depend largely on whether the virus re-emerges in China. At the epicentre of the outbreak, reported logistical challenges in China have resulted in a reduction in NPI supply in January 2020. Significantly, China accounts for 55% of primary nickel demand and approximately 35% of refined supply. In Indonesia, projects targeting battery-grade nickel intermediates as well as operations ramping up existing NPI capacity, are tied to Chinese expertise, and progress is likely to have been slowed by quarantine measure imposed in Q1.

Feedstock shutdowns in the rest of the world, combined with sustained shutdowns in mine producing regions could lead to a tightening market. Outside of China, through Q1 2020, a number of nickel producers have lined up to make announcements as to how they intend to respond to the outbreak, including placing mines on temporary care and maintenance. Much will depend on the length of the shutdowns of supply outside of China, which is likely to depend on the level of accumulated feedstock at smelters and refineries.

Roskill continues to closely monitor developments in the industry, adjusting supply/demand forecasts accordingly throughout the year. These updates will be provided in conjunction with Roskill’s most recent nickel report which addresses many of the key questions facing the industry:

 

  • How will the Indonesian export ban impact Chinese NPI supply?
  • How quickly can the Indonesian NPI industry ramp up?
  • How are the impacts of COVID-19 likely to be felt by the nickel market through 2020?
  • How will nickel demand from stainless steel compete with EV battery market growth?
  • Will the battery market’s nickel requirements limit availability for the stainless steel industry?
  • How are prices likely to evolve over the outlook period?

        

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