Nickel: The necessity of higher prices · Robert Cartman – Hatch Beddows. 2 Hatch and Hatch Beddows Short-term Ni prices Long-term Ni prices ... & Catering Industrial applications

Nickel: The necessity of higher prices

Robert Cartman – Hatch Beddows

2

�Hatch and Hatch Beddows

�Short-term Ni prices

�Long-term Ni prices

�Conclusions

Contents

METAL BULLETIN 25TH INTERNATIONAL FERROALLOYS CONFERENCE, 2009

SERVICES

SECTORS

HATCH

Hatch services and sectors

© Hatch Associates Limited, 2009

HATCH

Global reach and resources

Canada• Calgary, Alberta• Hamilton, Ontario• Montreal, Quebec• Sorel-Tracy, Quebec• Sudbury, Ontario• Mississauga, Ontario• Niagara Falls, Ontario• Vancouver, British ColumbiaUSA

• Boston, Massachusetts• Buffalo, New York• Millburn, New Jersey• Monroeville, Pennsylvania• New York, New York• Pittsburgh, Pennsylvania• Pleasanton, California• San Francisco, California• Seattle, Washington

3400

South America• Antofagasta, Chile• Santiago, Chile• Lima, Peru• São Paulo, Brazil• Belo Horizonte, Brazil• Vitoria, Brazil

700

Europe• London, England• Moscow, Russia

170

South Africa• Johannesburg• Richards Bay

600

India• Delhi

China• Beijing• Shanghai

120

Australia• Brisbane• Gladstone• Mackay• Melbourne• Newcastle

• Perth• Sydney• Townsville• Whyalla• Wollongong

2300(Yellow indicates regional hub)

8000 people

© Hatch Associates Limited, 2009

5

Hatch counts many of the world’s major mining and steelmaking companies

and financial institutions among its core client base

Mining

Alcan

Alcoa

Anglo American

Assmang

BHP Billiton

De Beers

ENRC

Falconbridge

Impala Platinum

Lonmin

Newmont Mining

Norilsk

Placer Dome

QIT

Rio Tinto

SUAL

Vale Inco

Xstrata

Steel

ArcelorMittal

BlueScope Steel

Celsa

CMC

Tata/Corus Group

Evraz Group

Gerdau Group

Mechel

Metalloinvest

Metinvest

Nucor

POSCO

Ruukki

Severstal

Shougang

TMK

U.S. Steel

voestalpine

Financial institutions

ADB

Bank of America

Bear Stearns

CIBC

Citibank

Commonwealth Bank

Credit Lyonnais

CSFB

Deutsche Bank

EBRD

HSBC

IFC

JP Morgan Chase

Mellon Bank

NM Rothschild & Sons

RBS

UBS Warburg

World Bank


6




�Conclusions

Contents


7

The LME Ni price has shown great volatility in the last 5 years, driven by a

number of key factors

Source: MB, Hatch Beddows

LME Ni price ($/tonne) Drivers of short-term Ni price

� Supply / Demand balance

� Stockpiles, strikes, natural disasters

� Stainless production, financial crises / recession

� Expectations

� Alloy surcharge mechanism

� Speculation

� Dollar weakness

� Against Ni-producing countries

� Input costs

� Oil price, sulphuric acid


0

10,000

20,000

30,000

40,000

50,000

60,000

Aug

04Feb

05A

ug 05

Feb 06

Aug 06

Feb

07A

ug 0

7Feb

08A

ug 0

8Feb

09Aug

09

8

Ni supply has moved in line with prices. Cutbacks in 2008 reflect the fact

that prices moved below marginal cost for some producers

Source: INSG, MB, Hatch Beddows

Global nickel mineproduction (contained Ni)

Suspension of Australian operations (47kt)Norilsk

Cutback of Indonesian operations (7kt)Antam

Onca Puma project repeatedly suspended

(58kt)

Global mine cutbacks (90kt)

Vale

Closure of Ravensthorpe, now up for sale

(14kt)BHP Billiton

Falcondo operations in Dominican Republic

suspended indefinitely (29kt)

Mine closures in Canada (17kt)

Xstrata

Key nickel cutbacks 2008 / 2009


kt$’000/tonne

0

400

800

1,200

1,600

2004 2005 2006 2007 2008

Russia Canada Australia

Indonesia New Caledonia Others

0

10

20

30

40

0

400

800

1,200

1,600

2004 2005 2006 2007 2008

Russia Canada Australia

Indonesia New Caledonia Others

0

10

20

30

40

9

Despite some cutbacks, Ni oversupply will act as a drag on upward

movements in the Ni price in the short term

Source: MB, LME, INSG, Hatch Beddows

LME Ni stocks (kt)

2004 2005 2006 2007 2008 2009

Ni stocks vs. LME Ni price

No. weeks consumption

$’000/tonne


0

25

50

75

100

125

0

10

20

30

40

50

60

3 4 5 6 7 8 9 10

10

Ni demand is dominated by stainless steel production. This has fallen

since a 2006 peak of 28.4Mt

Source: ISSF, Hatch Beddows

Global stainless steel productionNi demand by end-use


kt

Plating

12%

Foundry

3%

Other

6%

Non-ferrous

14%

Alloy steel

8%

Stainless

steel

57%

0

5,000

10,000

15,000

20,000

25,000

30,000

2004 2005 2006 2007 2008

Europe China Other Asia Americas Africa

11

The production of Ni-containing grades of stainless steel has fallen even

faster than overall stainless steel production

Source: ISSF, MB, Hatch Beddows

Global stainless steel productionby series (2004-09)

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

Q1 2001 Q3 2003 Q1 2006 Q3 2008

Cr Ni


Index of Cr and Ni prices(Q1 2001 = 100)

Mt

2.31 2.38 2.67 3.23 2.95 2.60

16.09 15.35

18.5816.23

15.3914.47

6.03 6.44

6.958.18

7.28

6.60

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009f

200 300 400 Other

12

The supply / demand balance for nickel has an effect on nickel prices,

although 2007 shows that other factors matter

Source: Hatch Beddows

Supply / Demand balance for finished Ni


kt

LME Ni price ($/tonne)

-60

-40

-20

0

20

40

60

80

100

120

2004

2005

2006

2007

2008

2009

0

10,000

20,000

30,000

40,000

50,000

60,000

Aug

04Feb

05Aug

05Feb

06A

ug 06

Feb 07

Aug

07

Feb 08

Aug 0

8Fe

b 09

Aug

09

13

The previous alloy surcharge mechanism of stainless steel producers

helped to create a speculative cycle

Source: LME, Hatch Beddows

Mar ’06 = $14,893/t

Apr ’06 = $17,932/t

May ’06 = $21,065/t

Jun ’06 = $20,747/t

Jul ’06 = $26,569/t

Aug ’06 = $32,748/t

LME Ni pricerises sharply

Buyers’expectfuturepricerises

Buyers bringforward purchases

Increasein

demandfor

LME Ni

Jun ’06surcharge

Jul ’06surcharge

Previous alloy surcharge mechanism Effect of previousalloy surcharge mechanism


14

The weakening of the US dollar has helped to drive the Ni price higher

Source: Oanda, Hatch Beddows

Indexed dollar value vs. LME Ni price$’000/tonne

Effect of $ weakness on Ni prices

� Priced in dollars

� No US production of Ni

� Ni Production in non-$ countries

� Ni Production in countries with ‘floating’ FX rate

� Dollar weakness

� Falling revenues for Ni producers

� Need to increase $ price of Ni to compensate

� Conclusion

� Visible correlation, r = -0.6

� Large movements driven more by short-term market conditions


Aug ’04 = 100

0

20

40

60

80

100

120

140

Aug

04

Jan

05Ju

n 05

Nov

05

Apr 06

Sep

06

Mar

07

Aug

07Ja

n 08

Jun

08N

ov 0

8Apr

09

Sep

09

0

10

20

30

40

50

60

$ / RUB $ / CAD LME Ni (RHS)

15

0%

20%

40%

60%

80%

100%

Russia Australia Canada Indonesia China NPI*

Fuel Labour

Maintenance / Overheads Raw materials

As a major component of production costs, the rise in oil prices over

recent years has also fed through to Ni prices

Ni mining and processing costs, 2009$/bbl

$’000/tonne

Ni and oil price


0

20

40

60

80

100

120

140

160

Jan 01 Mar 03 May 05 Jul 07 Sep 09

0

10

20

30

40

50

60

Oi l Ni

Source: Company reports, EIA, Hatch Beddows* via EAF

16

Nickel prices have been influenced by a range of factors over the last 5

years



LME Ni price ($/tonne)

• Supply / Demand• Input costs

• Dollar weakness

• Speculation• Supply / Demand

• Input costs• Dollar weakness

0

10,000

20,000

30,000

40,000

50,000

60,000

Aug

04O

ct 0

4D

ec 0

4Feb

05A

pr 05

Jun 0

5Aug

05O

ct 05

Dec

05

Feb

06A

pr 0

6Ju

n 06

Aug 06

Oct

06

Dec

06

Feb 07

Apr 0

7Ju

n 07

Aug

07O

ct 0

7D

ec 0

7Feb

08Apr 0

8Ju

n 08

Aug

08

Oct 0

8D

ec 0

8Fe

b 09

Apr

09

Jun

09Aug

09

17




�Conclusions

Contents


18

Long-term Ni prices have averaged just under $14,000/tonne in real terms

(2008 $)

Source: USGS, LME, Hatch Beddows

Long-term Ni prices ($/tonne) Drivers of long-term Ni price

� Supply / Demand

� Long-term stainless production

� Long-term Ni availability, investment vs. exploitation

� Supplier / Consumer power balance

� Consolidation in Ni, stainless industries

� Backward / Forward integration

� Technology

� Reduction in marginal costs of mining, processing

� Greater accessibility of ores

� Processing of by-products

� Substitution

� Non-nickel stainless, Li-ion batteries


Long-termreal average

0

10,000

20,000

30,000

40,000

1900

1908

1916

1924

1932

194019

4819

5619

641972198

0198819

962004

Nominal

Real (2008 prices)

19

Long-term stainless steel production has risen at a CAGR of 4.5% since

1965

Source: Vale, ISSF, Hatch Beddows

Stainless steel production


Stainless steel productionby series, 2001-09kt Mt

0

5,000

10,000

15,000

20,000

25,000

30,000

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006 2007 2008 2009

300 400 200 Other

20

Stainless steel production is forecast to continue rising in order to meet

the expected growth in consumption by the developing world

Source: Vale, IMF, Hatch Beddows

Per capita consumption of stainless steel vsincome per capita for selected countries, 1997-2008

China Malaysia

SouthKorea

Taiwan

Japan


$’000 per capita, 2008 (PPP)

Kg

pe

r ca

pit

a

0

10

20

30

40

50

0 10 20 30 40 50 60

21

40%

60%

80%

2001 2003 2005 2007 2009

% 300-series

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2020

Long-term stainless steel production will move toward 40Mt by 2020.

Further substitution is possible but most of this has already taken place

Source: ISSF, Hatch Beddows

Stainless steel production

5-10%

1-5%

10-15%

5-10%

0-1%

2020

300-series ratio

Percentage point shift from 300-series


kt

-40

-20

0

Appliances

& Catering

Industrial

applications ABC Tubemaking Transport

Change 2001 - 2008 Potential future change

22

Long-term Ni supply fluctuates between waves of investment, followed by

exploitation

Source: INSG, USGS, LME, Hatch Beddows

Ni production, mined

Investmentphase

Investmentphase

Investmentphase

Investmentphase

Investmentphase

Investmentphase


Long-term real Ni prices (2008 $)$’000/tonneMt

0.0

0.5

1.0

1.5

2.0

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

0

10

20

30

40

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

23

The next wave of investment could add another ~500kt of capacity

Source: Company reports, Hatch Beddows

63ktLateriteGladstone (?)

46ktLateriteVermelho (?)

22kt

23kt

Laterite

Laterite

Shevchenko

Tagaung Taung

31ktLateriteRamu

10kt (?)SulphideEagle (?)

Laterite

Laterite

Sulphide

Laterite

Laterite

Laterite

Laterite

Laterite

Laterite

Ore type

60kt

52kt

12kt

40kt (?)

60kt

60kt

23kt

36kt

60kt

Capacity

Koniambo

Ambatovy

Barro Alto

Fenix (?)

Goro

Nonoc (?)

Nunavik

Onca Puma

Weda Bay (?)

2013+201220112010


24

A small nickel supply deficit is expected for 2009 and 2010 before a return

to surplus


Supply and demand of finished Ni

forecasts

Supply / Demand balance for finished Ni

forecasts


kt kt

1,000

1,100

1,200

1,300

1,400

1,500

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Supply Demand

-60

-40

-20

0

20

40

60

80

100

120

2001200

220

0320

04200520

0620

07200

8200

920

1020

112012

25

Nickel is increasingly being extracted from lateritic ores


Nickel production by ore type


Nickel resources by ore type

0%

20%

40%

60%

80%

100%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006200

7200

820

09

Sulphides Laterites

Sulphides

27%

Laterites

73%

Sulphides Lateri tes

26

Laterite resources are mainly found in countries that require large

spending on infrastructure



27

Lateritic ores need to be subdivided into limonites or saprolites in order

to understand the respective mining and processing costs

Source: Mick Elias, Hatch Beddows


5.5m

10m

Depth

% content

35 – 4550.010.3Bedrock

15 – 3510 – 250.02 – 0.11.8 – 3Saprolite

5 – 1525 – 400.02 – 0.11.5 – 4Transition

zone

0.5 – 540 – 500.1 – 0.20.8 – 1.5Limonite

MgOFeCoNi

Oxides

High Fe, low MgO, low SiO2

Processing – Dependent onpresence of clay minerals.Typically hydrometallurgy

(HPAL, Heap, Caron)

Silicates

Low Fe, high MgO, high SiO2

Processing – Pyrometallurgy.End product (FeNi, matte)dependent on mineralogy

28

Summary of nickel ores and their pros and cons



Nickel ore

LateritesSulphides

• High mining costs

• Underground mining

• Low processing costs

• Proven technology

• Often associated with valuable by-products (Cu / Pd / Pt)

Limonites Saprolites

• Low mining costs

• Surface mining

• High processing costs

• Unproven technology

• Protracted startup

• Expensive materials of construction

• High acid consumption

• Low mining costs

• Surface mining

• Falling processing costs

• Proven technology

• Large-scale operations

• Vulnerable to energy costs

• Slag disposal

29

Mining and processing costs will depend on a variety of factors. It is

too simplistic to categorise as laterites vs. sulphites



Resource

Higher grade = better

>1.5% ≈ saprolite

Saprolite = provenprocessing technology

Larger size = betterLower capex per tonne

Ore mineralogy

Content of clay mineralsLower = better

Magnesium contentLower = less acid consumption

in hydrometallurgy

SiO2 / MgO ratioImpacts on choice of end-product

Inputs

Merchant vs. captive

Hydroelectricity vs. fossil fuels

Hydrocarbons

Labour availability / skills

Infrastructure

Power / Acid / Lime plants

TransportationRoad / Sea / Air

Conveyors / Pipelines

Difficulty of terrain / climate

Accommodation

Permits / Compensation

Project management

Project phasing

Project team continuity

New technologies

30




�Conclusions

Contents


31

� Short-term – Higher Ni prices through 2010, falling thereafter

� Supply deficits for 2009 / 2010

� Stainless production to begin rebound in 2010

� New supplies to arrive, mainly from 2011

� Long-term – Rise in real prices but will it be temporary?

� Greater importance of laterites

� Rise in production costs

� Need for technological developments in processing limonites

Conclusions


32

Hatch Beddows Strategy Consulting

Hatch Beddows is a member of the HATCH GROUP of companies

�

+44 7813808240Mobile

+44 20 7963 0972Fax

+44 20 7906 5119�

Senior Consulting Analyst

Robert Cartman

+44 20 7906 5100 (switchboard)�

9 Floor, Portland House, Bressenden Place, London SW1E 5BH�

[email protected]


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Nickel: The necessity of higher prices · Robert Cartman – Hatch Beddows. 2 Hatch and Hatch Beddows Short-term Ni prices Long-term Ni prices ... & Catering Industrial applications

Documents

Nickel: The necessity of higher prices · Robert Cartman – Hatch Beddows. 2 Hatch and Hatch Beddows Short-term Ni prices Long-term Ni prices ... & Catering Industrial applications