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Nickel usage to grow 4%/year to 2027, deficit to narrow: Roskill

London (Platts)--8 Feb 2018 942 am EST/1442 GMT


Primary nickel consumption is set to rise by just under 4%/year between 2017 and 2027, driven by increased consumption by stainless steel producers and by the battery sector, but a ramp-up in Indonesian capacity means refined supply growth will outstrip demand, Roskill Information Services said on February 7.

"The scale of investment in Indonesia will lead to a more rapid increase in refined supply than demand in the years ahead, leading to increasingly small deficits and then into a succession or modest surpluses. Only towards the end of our forecast period does a lack of visible projects lead to a decline in supply growth and to new market deficits," the UK-based consultancy said.

"The upshot is that the LME nickel price is likely to rise further during periods of market deficits, although price growth should be held back by the high level of visible stocks," Roskill said, adding that market surpluses in the middle of the forecast period "will drag prices down before renewed deficits at the end of our forecast horizon push prices higher again."

The nickel market was set to register its second-successive deficit in 2017, but LME nickel prices remain low by historical standards, while a succession of market surpluses up to 2015 have left reported nickel stocks at near-record highs, equivalent to 9.9 weeks of consumption, the company noted.

The LME nickel cash settlement price averaged $10,411/mt last year, up from $9,609/mt in 2016 but down 18% from its five-year average (2013-2017) of $12,741/mt and 36% below the 10-year average of $16,157/mt.

BATTERY DEMAND

Roskill estimates that the stainless steel sector accounted for nearly 70% of all primary nickel consumption in 2017.

"Demand for primary nickel in this market is anticipated to increase by 2.5% per year over the course of our forecast period, thanks to rising output in China and Indonesia," the company said.

But despite this growth, the stainless steel sector's share of nickel consumption is expected to decline over the coming decade because of the rising importance of the battery sector, notably in automotive applications.

"It is becoming increasingly clear that we are currently at a turning point: Roskill expects sales of purely fossil-fuelled cars to start declining, even as sales of all types of vehicles continue to rise," the company said, adding that by 2027 it forecasts that electric vehicle sales will account for nearly 30% of the total.

Currently, the best technology to store the energy required by electric motors is the lithium-ion battery, and most (although not all) types of such batteries contain nickel.

"Therefore, the increasing electrification of the automotive industry will represent a new demand stream for nickel," the company said.

"In addition, increasing the energy density of lithium-ion batteries (and therefore increasing vehicle range) means increasing the concentration of nickel within the battery cathode, a trend that we also expect to occur during our forecast period. This will give demand for nickel in the battery industry a double-boost," it added.

By 2027, Roskill expects primary nickel demand in batteries to be above 500,000 mt/year -- still only a third of the consumption by the stainless steel sector, but rising at faster rate, even in terms of tonnes.

Primary nickel demand in the battery sector is forecast to rise by over 20%/year between 2017 and 2027, it added.

SUPPLY GROWTH LAGS

On the supply side, growth has lagged demand growth since 2014 as weak nickel prices have dissuaded investment in new capacity and led to some capacity closures, the company said, noting that as a result, the market has moved from a structural surplus into deficit, with 2017 being the second year in succession that demand exceeded supply.

There have been some exceptions, however, with Chinese producers investing heavily in nickel pig iron plants in Indonesia following the Indonesian government's ban on the export of unprocessed ores in 2014, Roskill said.

"In 2014 Indonesian primary nickel production was around 24,000 mt, but we expect this to have reached over 170,000 mt in 2017, thanks to the commissioning of new plants. By 2027, we expect Indonesian refined production to have risen to over 550,000 mt," the company said.

In addition, a move in 2017 to allow the export of some low-grade ores from Indonesia has boosted ore supplies to domestic Chinese NPI plants.

"This should also allow local NPI producers to increase output and by 2027 we expect primary nickel production to be some 140,000 mt higher than in 2017," Roskill said, adding that jointly, Indonesia and China will account for around 60% of all production growth in the next decade.

"With nickel prices still low by historical standards and visible stocks elevated, there has been little incentive to invest in new refining capacity. However, the expected rise in nickel consumption in batteries has increased interest in producing battery-grade material, such as nickel sulphate," Roskill said.

Recently, BHP Billiton decided to add a sulfate plant at its existing Kwinana refinery in Australia to convert the plant's production of nickel powder into nickel sulfate using sulfuric acid from its Kalgoorlie smelter.

"A second phase is a possibility, and Roskill expects similar announcements by other producers in the future," the company said.

--Andy Blamey, andy.blamey@spglobal.com




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