The international refined nickel production and trade market will evolve in the coming decade as China's large nickel deficit, driven by the electric vehicle (EV) success story, and Russia's slowly falling nickel surplus, driven by a thin project pipeline, open opportunities for other producers, says financial risk management, solutions and insights company Fitch Solutions Country Risk and Industry Research (Fitch).
The company further notes that Indonesia will be one of the outperformers over the coming years, as it is well positioned to service Chinese demand owing to its close geographical location and rising domestic refined nickel production capacity.
In addition, rising nickel production in Japan over the coming years will sustain its growth trend in unwrought nickel exports to top nickel consumers internationally, while the UK and Norway will also have an opportunity to increase production as Europe's falling imports from Russia enable other top European producers to fill the gap.
Fitch states that the growing EV market in China will sustain the country's production balance deficit, increasing demand for refined nickel imports.
The company also expects the increased manufacturing of EVs, alongside growth in stainless steel production, to drive the growing production balance deficit in China. The Chinese EV market in particular, states Fitch, is poised to be a growing source of global nickel demand in the coming years, as nickel is used extensively in the batteries that power these vehicles.
“Our Autos team forecasts Chinese EV sales to grow by an average of 10.1% through to 2029.”
This rise in nickel demand will offset expected refined production growth in the country and support a wider average nickel production deficit in China.
Fitch says China’s nickel production deficit will increase to an average of 244 000 t through 2020 to 2029, compared with an estimated average of 204 000 t over 2010 to 2019.
In this regard, the company notes that the wide deficit will underpin an increase in demand for refined nickel imports. “We expect the opportunity to fill China's production balance deficit will incentivise an increase in smelter capacity, particularly in Indonesia.”
As the Chinese domestic manufacturing sector demands more refined nickel for its activities, smelters will look to capitalise on this opportunity.
However, Fitch forecasts that domestic smelting capacity growth will not be able to supplement this increase, thus requiring additional refined nickel imports. In particular, the company expects Indonesia to ramp up its refined smelting capacity to meet Chinese demand over the medium term.
Further to this, Fitch points out that the Indonesian government recently put in place a nickel ore export ban in January, as it pursues vertical integration in the nickel industry, where refined nickel exports are a higher value-add product.
In terms of production, Fitch note that Indonesian miners are now required to ramp up smelting capacity to begin exporting again, or sell ores to domestic smelters. In this regard, as Indonesian nickel smelting capacity grows, it will be well placed to feed China's growing demand owing to its close geographical position.
Fitch forecasts that Indonesia's refined nickel surplus will grow from about 24 000 t in 2019, to 100 000 t by 2029.
In terms of Japanese production, Fitch states that the country will continue to see refined nickel export growth as an increase in domestic production over the coming years pushes the country into a production balance surplus.
Japan's refined nickel production is set to grow as rising nickel prices and some import tariffs keep the sector competitive.
Generally, the company notes that Japan's nickel output stays within its borders to be consumed by domestic industries. However, it expects Japan will shift into a production surplus and smelters will be pressured to export abroad as production growth outpaces consumption growth in the coming years.
Indeed, the country has averaged nickel export growth of 10.4% year-on-year over 2011 to 2019, reaching 20 000 t in 2019, with rising exports to other top nickel consumers such as the US and India.
The US and India bought 16.6% and 12.5% of Japan's unwrought nickel exports respectively in 2019, up from 0.7% and 7.3% in 2011, according to Trade Map data. Fitch states that India, in particular, will experience an increase in nickel import demand owing to a widening nickel deficit.
A declining production surplus in Russia will also open a gap for top European producers such as Norway and the UK to fill the void in the European nickel market, according to Fitch.
“We forecast Russia's refined nickel production growth to begin to stagnate and subsequently decline over the coming years as a weak project pipeline prevents significant refined nickel production growth in the country.”
This will lead to a declining production balance surplus of 172 000 t over 2020 to 2029, compared with 209 000 t over 2010 to 2019.
Fitch notes that Russian nickel primarily supports the European market, making up 99.4% of unwrought nickel exports in 2019. A majority is exported to the Netherlands which serves as a key disbursement hub for the rest of Europe.
With the Russian nickel production surplus set to shrink, the company says this will open a small opportunity for other European producers to fill the void. “We currently forecast a slight uptick in production in both Norway and the UK, the sixth and thirteenth largest nickel producers respectively.”