Nickel

Rebecca McCallum

Nickel prices averaged around US$11 500 a tonne in the first five months of 2009 after falling to average US$10 500 a tonne in the March quarter 2009, the lowest since the September quarter 2003. Nickel prices increased steadily through April and May in response to an improvement in market sentiment toward the world economic outlook, and hence the demand for nickel in the short term.

The global economic downturn contributed to rapidly declining nickel consumption in late 2008 and early 2009, and announced substantial production cuts were not sufficient to prevent world nickel prices continuing to fall in the first quarter of 2009. Despite weak consumption, nickel prices started to recover gradually during the June quarter 2009, averaging an estimated US$12 900 a tonne. The recent price increase appears to have largely been driven by market expectations of a recovery in world demand during the second half of 2009 and further cuts to production. The extent to which recent increases in nickel prices are maintained will depend on market expectations of future demand and supply being met.

Lower prices in 2009, beginning to recover in 2010

Nickel prices are forecast to average around US$15 000 a tonne in the second half of the year, as world economic conditions are assumed to improve, leading to an increase in nickel consumption. If these expectations of increased demand are not met and consumption remains lower than currently assumed, prices could fall from current levels and average lower in the second half of the year. Alternatively, a stronger than anticipated recovery in nickel demand would result in prices rising beyond the current forecast.

For 2009 as a whole, refined nickel production is expected to exceed consumption, resulting in stocks increasing to more than seven weeks of world consumption, 16 per cent higher than at the end of 2008. Reflecting weak demand and increasing stocks, the nickel price for 2009 as a whole is forecast to average US$13 300 a tonne, a decrease of around 40 per cent from 2008.

As nickel consumption is expected to recover in 2010, nickel prices are forecast to average higher at around US$16 000 a tonne for the year. World stocks are anticipated to decline to around 6.6 weeks of world consumption, as consumption growth is likely to outpace production growth.

A significant risk to this forecast is the rate at which closed nickel mines and refineries reopen. If these mines and refineries restart more quickly than currently anticipated, prices could fall below current forecasts. Alternatively, if restarts occur more slowly, stocks may fall more quickly than forecast and prices rise faster.

Consumption remaining weak in 2009

Nickel consumption in Japan, Chinese Taipei, the United States and the EU 27 declined by more than one-third, and world consumption fell by 25 per cent in the first two months of 2009, compared with the same period in 2008. Declining production of consumer durables, motor vehicles and industrial buildings contributed to lower stainless steel demand and falling stainless steel mill utilisation rates. Consumption also fell in China on a year on year basis, but by a comparatively moderate 7 per cent over the same period.

Nickel consumption is forecast to grow moderately in the second half of 2009, in response to an assumed improvement in the economic outlook. However, the moderate increase is not expected to offset the significant fall in consumption in the first half of the year. For 2009 as a whole, world nickel consumption is forecast to decline by an estimated 8 per cent to 1.2 million tonnes.

In 2010, nickel consumption is forecast to increase to around 1.3 million tonnes, reflecting an expected rapid recovery in consumption in Asia and forecast moderate growth in Europe and North and South America.

As a result of significant increases in nickel prices between mid-2003 and mid-2007, a number of stainless steel producers substituted other less expensive input materials such as manganese for nickel. Despite a significant decline in nickel prices, many stainless steel producers have not switched back to nickel in stainless steel production. If this trend continues in the short term, it could limit any significant nickel demand growth, particularly in OECD economies.

In some applications such as hot water services, the current low nickel price has resulted in some substitution back to nickeliferous stainless steel. However, in other applications, for example in cutlery, substitution is yet to happen. Consumption of nickel in developing Asia is expected to increase by around 10 per cent in 2010, as economic growth recovers, particularly in applications where other grades of stainless steel are not as suitable such as in industrial kitchens.

Rapid decline in nickel production as mines close

Nickel mine production is forecast to decline by around 13 per cent in 2009, as around 250 000 tonnes of capacity has been shut down or placed on care and maintenance since August 2008. Rapid declines in world nickel prices have made production at some mines uneconomic. All major nickel producers including the Russian Federation, Canada, Australia, Indonesia and New Caledonia have been affected by the closure or downsizing of mining operations. As a result, nickel mine production is forecast to be around 1.3 million tonnes in 2009, down from 1.5 million tonnes in 2008. This forecast nickel mine production in 2009, if realised, will be the lowest since 2003.

In 2010, nickel mine production is expected to begin increasing in line with the forecast of a moderate rise in world prices. At these forecast prices, comparatively low cost mines are likely to begin restarting some or all of their capacity. As a result, production is forecast to increase by 6 per cent to 1.4 million tonnes in 2010.

Nickel mine closures and capacity reductions
project	company	country	estimated annual capacity reduction (t)
Ravensthorpe	BHP Billiton	Australia	50 000
Various	Norilsk	Australia	35 000
Falcondo	Xstrata	Dominican Republic	29 000
SLN	Société Le Nickel	New Caledonia	20 000
Various		China	20 000
Ufaleynickel	Ufaleynickel	Russian Federation	15 000
Loma de Niquel	Anglo American	Venezuela	15 000
Munali	Albidon	Zambia	10 000
Craig, Thayer Lindsay	Xstrata	Canada	8 200
Avebury	OZ Minerals	Australia	8 000
Copper Cliff	Vale	Canada	8 000
Trojan, Shanghai	Bindura	Zimbabwe	8 000
Berong	Toledo Mining	Philippines	6 000
Sudbury	Vale	Canada	5 000
Talvivaara	Talvivaara Mining	Finland	5 000
Hitura	Belvedere	Finland	2 500
Radio Hill	Fox Resources	Australia	1 500
Lockerby	First Nickel	Canada	500
Sources: estainlesssteel.com, ABARE.

Refined production also lower

As a result of lower prices and reduced world mine production, refined nickel production is forecast to decline by around 15 per cent, to 1.2 million tonnes in 2009. Refineries in countries such as the Ukraine, the Dominican Republic and Finland have closed or significantly reduced output. Production is also anticipated to decline in Canada, Japan and the Russian Federation.

In 2010, refined production is forecast to increase by around 9 per cent to 1.3 million tonnes, as higher prices are expected to encourage increased production.

Australia’s production declining

Australian nickel mine production is estimated to have declined by approximately 7 per cent in 2008-09, to 177 000 tonnes. Falling nickel prices have resulted in around 100 000 tonnes of Australia’s mine capacity being shut down since mid-2008. The full effect of these mine closures is not expected to be realised until the 2009-10 financial year, when Australia’s mine production is forecast to decline by a further 24 per cent, to 135 000 tonnes.

Australia’s refined nickel production declined by an estimated 13 per cent in 2008-09, to around 105 000 tonnes, as a result of disruptions at BHP Billiton’s Kalgoorlie smelter in Western Australia. In 2009-10, refined production is expected to increase by 5 per cent, to around 110 000 tonnes. Despite mine closures, current rates of production of nickel ores and concentrates are expected to be sufficient to meet this forecast increase in production. However, refined nickel production is not expected to return to full capacity (more than 120 000 tonnes) until mine production increases, because feed for refineries will be limited. For example, lower production is expected at Yabulu in Queensland following the closure of the Ravensthorpe mine, its Australian source of feed.

Export volumes downReflecting lower production and lower world prices, nickel export volumes are estimated to decline by 16 per cent to 177 000 tonnes in 2008-09, with the value of those exports declining by an estimated 60 per cent to $2.3 billion. In 2009-10, volumes are expected to decline by a further 20 per cent, to 141 000 tonnes, as a result of lower production. However, export values are forecast to increase to $2.6 billion as a result of a forecast higher Australian dollar nickel price.

Nickel outlook
			2008	2009	f	2010	f	% change
World
Production		kt	1 396	1 183		1 288		8.9
Consumption		kt	1 278	1 174		1 288		9.7
Closing stocks		kt	155	164		163		– 0.6
– weeks consumption			6.3	7.3		6.6		– 9.6
Price		US$/t	21 116	13 277		16 000		20.5
		USc/lb	958	602		726		20.5
			2007-08	2008-09	s	2009-10	f
Australia
Production
Mine		kt	190	177		135		– 23.7
Refined		kt	121	105		110		4.8
Intermediate		kt	45	21		16		– 23.8
Exports s		kt	210	177		141		– 20.3
– value		A$m	5 775	2 283		2 561		12.2