VANCOUVER (miningweekly.com) – Tightening long-term fundamentals for nickel are sketching a rosy picture for the stainless steel-making ingredient, as increased dependence from the burgeoning electric vehicle (EV) market adds a growing new demand stream in an already constrained supply scenario.
RNC Minerals president and CEO Mark Selby recently told an audience in Toronto that the nickel market has surprised many commentators with continued strong demand, with the recent market focus shifting to forthcoming demand from EVs in the 2020s expected to support an already robust medium and long-term picture.
According to him, stainless steel underpins an already robust nickel demand scenario. Demand for the metal had grown 5% over the last ten years, intensifying in 2016 and 2017 to more than 7% a year and creating a significant supply deficit in 2017 of more than 150 000 t, or 7% of global supply.
"EV battery demand growth underpins an already robust long-term demand growth story and it is about to drive annual demand growth to 2025 of more than 7%, requiring at least 1.5-million tonnes of new supply. This is driven by a combination of significant growth in EVs and a shift in battery chemistry toward higher nickel content, as cobalt prices rise," he stated.
Selby dispelled two myths of the new nickel supply/demand story. The first was the notion that there will be a shortage of nickel sulphate for batteries. "While supply is tight now, China will build two to three times the processing capacity that the market needs, like they have done for every semi-processed material previously, in an attempt to bid premiums down to zero profit. This creates a winning scenario for feed-supplying miners.
"The assertion that there will be future shortages of nickel sulphate is ludicrous. Chinese refined production of cobalt salts increased by six times in just three years to more than 20% of global refined production," he stressed.
Also, the notion that there will be a shortage of Class I nickel for batteries is not true. This, he said, cannot be true, since more than 400 000 t, or about 20% of nickel supply, or almost 40% of Class I supply, ends up in stainless steel production chains where it is not required. NPI plants can simply add a converter, add sulphur and produce a 70% nickel matte (PT Inco has done for 30 years) to be refined and also get cobalt as a by-product, he suggested.
"China is going to build significant nickel/cobalt processing capacity to produce battery products - creating massive overcapacity and leading to a breakdown of the multi-decade nickel smelting 'oligopoly'. This will create winners in the mining industry as terms for nickel/cobalt sulphide concentrates, and HPAL intermediates will improve dramatically as Chinese processors bid feed down to marginal cost.
"On the negative side, this will be a loss for existing nickel smelters (without captive feed) who will face massive competition for the first time. Existing nickel sulphate suppliers will see premiums erode to marginal costs," Selby advised.
He noted that the supply structure of nickel has been transformed over the last decade and that the coming decade faces increasing dependence on supplies from higher political risk jurisdictions, as few new low-risk projects dovetail into declines in traditional supplies.
"Nickel is increasingly dependent on higher political risk supply over the last decade, particularly Indonesia and Philippines (doubling from 18% to 36%), who have implemented policies in recent years causing substantial supply disruption and who will be the primary source of supply growth over coming decade," Selby advised.
Compounding matters is the fact that there are so few projects in the development pipeline.
While a demand shift from EVs is creating a "once-in-a-generation investment opportunity" he cautioned that there will be big winners and losers.
Recent nickel price movements finally broke through a seven-year downtrend, moving sharply higher at the start of November and cash spot prices recently briefly touched $6.34/lb.
Multi-year deficits are now eroding stocks from about 600 000 t in 2015, to recent levels of just more than 400 000 t. Since the start of 2018, inventories continued their decline at an annualised rate of about 160 000 t/y, Selby stated.
Nickel demand has been a leader among metals over the last decade, growing 5% and driven by continued strong growth in stainless steel of 5.4%. Both figures were consistent or better than long-term trends, he pointed out.
The International Energy Agency had estimated that the number of EVs on the road could range between 9-million to 20-million by 2020 and 40-million to 70-million by 2025, compared with just 2-million in 2017. By 2025, multiple commentators suggest a minimum of 400 000 t/y of new nickel demand from EVs, as nickel content increases to between 35 kg and 50 kg of nickel in typical battery chemistries.
"Nickel will make up an increasing proportion of battery materials driven simply by the need for higher energy density and lower costs. For example, Tesla batteries already contain 80% nickel. Further, given safety concerns for use in handheld devices and automobiles, development cycles for new batteries are very long - there are no other technologies on the near-term horizon," he pointed out.
By 2025, trend demand of 5% growth a year requires about 1.1-million tonnes a year of new supply and the low end of EV forecasts suggests a further 400 000 t/y is required. This is equivalent to four times the growth in Chinese NPI production or total 2010 nickel production.
However, Selby again pointed out that the 'project cupboard' outside of Indonesian nickel pig iron (NPI) production is empty. "There are few projects in the pipeline and 35+ years of inertia need to be overcome," he warned.
Traditional sulphide and ferronickel producers provided 85% of supply in 2007. By 2017, they had declined to less than half of supply as NPI growth in China and Indonesia provided more than 100% growth in nickel supply, including in 2016 and 2017.
Nickel production from most of the largest sulphide operations has declined over the last decade as low nickel prices deterred investment. Meanwhile, the amount of additional nickel supply from the billion-dollar laterite projects of the last decade remained underwhelming, with several operations such as Ambatovy, Vale New Caledonia and Koniambo remaining some ways off their nameplate capacities.
Meanwhile, established high-pressure acid leach producers are facing challenges to maintain existing production levels.
Chinese nickel supply of both NPI and non-NPI metal has levelled out in recent years, as cost pressures, environmental constraints, and lower ore grades look set to constrain future growth. Further, China's environmental crackdowns are now material, and beg the question: how much NPI output will China accept going forward?" Selby asked rhetorically.
According to him, the fundamental issue facing the nickel industry in 2017 is an empty 'project cupboard' of large projects outside Indonesia.
"At the beginning of the last decade prior to the significant run-up in nickel prices, the project cupboard was very full with many large 20 000-plus-ton-a-year projects known for decades. Today's picture is very, very different, setting the stage for an exciting nickel cycle," Selby predicted.
NPI from Indonesia is one of few potential sources of new nickel that the market requires, but it comes with significant political risk.
Indonesian NPI output was equal to about 10% of the global supply in 2017 and the country also saw its first significant production of stainless steel, mainly by China-based Tsingshan.
Tsingshan will bring on about three-million tonnes of stainless steel production capacity during the first half of 2018, but Selby warned that it is dangerous to extrapolate Tsingshan's performance to other companies.
"Tsingshan's result is based on the successful execution of a long-term plan stretching over a decade. Other Chinese miners have a poor track record outside of China and combined with increased political risk in Indonesia over the last few years, it will almost certainly slow the pace of investment," Selby stated.
Indonesia is in a position to become the world's largest nickel producer and one of the largest stainless steel producers, but it will take until the early to mid-2020s at the earliest for it to reach those levels.
RNC's strategic alliance with Tsingshan led to the development of the first integrated NPI plant to directly utilise nickel sulphide concentrate as part of the stainless steel production process through concentrate roasting.
"It is RNC's roasting approach that allows nickel concentrate to be utilised by a wide range of nickel consumers, including very large scale integrated NPI/stainless plants that convert feed into finished product at higher recoveries and at significantly lower processing costs, resulting in expected payabilities much higher than the 70% to 75% payability recently available in the nickel concentrate market," Selby said.
RNC is developing the largest undeveloped nickel and cobalt reserve in the world, the Dumont nickel/cobalt project, which is expected to produce the highest-grade nickel and cobalt sulphide concentrate in the world.