BMI says outlook for Russian nickel sector bleak

3rd August 2017 By: Creamer Media Reporter

JOHANNESBURG ( – Fitch group company BMI has lowered its forecast for Russian nickel production in 2017, and says the outlook for the country’s domestic production over the next five years looks bleak.

BMI stated this week that Russia’s nickel production would remain on a negative trend this year, following a contraction of 4.8% year-on-year in 2016, citing ongoing operational challenges at Norilsk Nickel mines, which account for more than 80% of domestic output.

“We have revised down our previous forecast of 1% average nickel production growth this year to a decrease of 5%, meaning absolute production in the country will drop from 256 000 t in 2016 to 243 000 t in 2017,” the company said.

BMI said that Norilsk Nickel was underperforming, pointing to the first half-year results, which were released on Monday. The world’s largest nickel producer’s consolidated nickel production amounted to 103 000 t, which was a 15% year-on-year decrease, while production from Russian operations totalled 98 000 t, a 1% year-on-year decrease. The weaker performance is the result of the closing of a nickel plant in Norilsk Nickel’s polar division in late 2016, which led to an increase in work-in-progress material.

Russia’s other major producer, OAO Ufaleynickel stopped production indefinitely in April, owing to financial losses as a result of persistently low nickel prices in the last few years and long-term debt.

On a longer five-year-term horizon, BMI’s nickel forecast for Russia remained bleak as prices head lower. The group is forecasting an average nickel price of $10 250/t for 2017, but expects the price to gradually drop to $9 000/t by 2021, as the global refined market moves into increasing surplus.

“Nickel will be the only base metal to decrease in price in the coming years, in contrast to the improving prospects of copper, aluminium, lead, tin and zinc. Nickel’s negative price outlook will therefore continue to squeeze Russian nickel miners' financial positions, as evidenced by a 6% year-on-year decrease in cash generation and a 9% decline in earnings before interest, tax, depreciation and amortisation for Norilsk Nickel in 2016,” BMI stated.

The firm added that an appreciation of the Russian rouble would partially offset losses for miners, but noted that ongoing financial strain would lead to few new projects coming on line and subdued investment into existing operations.

“As a result, Russian nickel production growth will practically stagnate over 2017 to 2021 at an average of 0.40%, performing significantly below all other key commodities produced in the country, bar platinum.”