After several years of surplus, the nickel market moved to a deficit in the second quarter of this year and, with the price of the commodity now above $10 000/t, a smaller portion of global nickel producers are now cash negative, research and consultancy group Wood Mackenzie nickel markets principal analyst Sean Mulshaw tells Mining Weekly.
He expects that the market will remain undersupplied over the medium term and, therefore, nickel prices should increase from their current level. Although the metal reached a record-high price, higher than $50 000/t, in 2007, Mulshaw cautions that only moderate improvements can be expected until the excess supply of nickel has been depleted.
“At present, nickel prices are low, primarily owing to many consecutive years of oversupply and a consequent build-up of global nickel stocks to record levels in response to the repeated promise of strong global demand that has, generally, failed to materialise.”
Mulshaw notes that, at recent price lows, two-thirds of the world’s nickel producers have been losing money, with many forced to reduce costs and output to save cash. He adds that, despite this, surprisingly few producers have closed, largely in preparation for rising prices as global nickel supply tightens.
This expected supply constraint is mainly driven by the substantial decline in Chinese nickel production and production cuts elsewhere in the world due to low nickel prices. Mulshaw explains that two-thirds of all nickel produced is used to make stainless steel, a market which China dominates, subsequently accounting for about 50% of global nickel demand.
“Until recently, this demand for nickel was supported by the rapid growth of China’s nickel smelting industry, but a ban on exported ore from Indonesia in 2014 has resulted in falling output in Chinese nickel for stainless steel production since then,” he says.
Ore supply to China from the Philippines, the only other supplier of nickel feed, is also at risk, as a result of an ongoing environmental audit of existing mines, causing a sudden uptick in nickel prices, Mulshaw notes.
Africa accounted for 6.5%, or about 2.1-million tons, of global mined nickel production in 2015, owing mainly to diversified miner African Rainbow Minerals’ Nkomati mine, in South Africa; diversified miner Mwana Africa’s Trojan mine and platinum-group metals miner Zimplats’ project, both in Zimbabwe; nickel and cobalt miner Ambatovy’s project, in Madagascar; and nickel miner Tati Nickel’s project, in Botswana.
The continent generates 4.5% of global finished nickel production, but accounts for only 1% of global nickel consumption, most of which is used by stainless steel producer Columbus Stainless at its mill in South Africa.
“In the longer term, there will be a need for the development of new projects to ensure that the world supply keeps pace with demand. However, investment in new projects will likely be stimulated only once the price climbs substantially higher than what it is . . .” he concludes.