a look at nickel price bubbles and ferronickel pricing · pdf filea look at nickel price...

A look at nickel price bubbles and ferronickel pricing

Robert Cartman, Consultant, Hatch

November 2010November 2010

2

�Hatch and Hatch Beddows

�Should we be expecting another nickel bubble?

�Conclusions

�A brief look at ferronickel pricing

Contents

METAL BULLETIN 26TH INTERNATIONAL FERROALLOYS CONFERENCE, 2010

SERVICES

SECTORS

HATCH

Hatch services and sectors

© Hatch Associates Limited, 2010

HATCH

Global reach and resources

Canada• Calgary, Alberta• Hamilton, Ontario• Montreal, Quebec• Sorel-Tracy, Quebec• Sudbury, Ontario• Mississauga, Ontario• Niagara Falls, Ontario• Vancouver, British ColumbiaUSA

• Boston, Massachusetts• Buffalo, New York• Millburn, New Jersey• Monroeville, Pennsylvania• New York, New York• Pittsburgh, Pennsylvania• Pleasanton, California• San Francisco, California• Seattle, Washington

3400

South America• Antofagasta, Chile• Santiago, Chile• Lima, Peru• São Paulo, Brazil• Belo Horizonte, Brazil• Vitoria, Brazil

700

Europe• London, England• Moscow, Russia

170

South Africa• Johannesburg• Richards Bay

600

India• Delhi

China• Beijing• Shanghai

120

Australia• Brisbane• Gladstone• Mackay• Melbourne• Newcastle

• Perth• Sydney• Townsville• Whyalla• Wollongong

2300(Yellow indicates regional hub)

8000 people

© Hatch Associates Limited, 2010

5

Hatch counts many of the world’s major mining and steelmaking companies

and financial institutions among its core client base

Mining

Alcan

Alcoa

Anglo American

Assmang

BHP Billiton

De Beers

ENRC

Falconbridge

Impala Platinum

Lonmin

Newmont Mining

Norilsk

Placer Dome

QIT

Rio Tinto

SUAL

Vale Inco

Xstrata

Steel

ArcelorMittal

BlueScope Steel

Celsa

CMC

Tata/Corus Group

Evraz Group

Gerdau Group

Mechel

Metalloinvest

Metinvest

Nucor

POSCO

Ruukki

Severstal

Shougang

TMK

U.S. Steel

voestalpine

Financial institutions

ADB

Bank of America

Bear Stearns

CIBC

Citibank

Commonwealth Bank

Credit Lyonnais

CSFB

Deutsche Bank

EBRD

HSBC

IFC

JP Morgan Chase

Mellon Bank

NM Rothschild & Sons

RBS

UBS Warburg

World Bank


6



�Conclusions


Contents


7

Two price bubbles in Ni stand out from recent times – that of the late

1980s and that of a couple of years ago

Source: MB, Wood Mackenzie, Hatch Beddows

LME Ni price vs. cost of production ($/tonne)


0

10,000

20,000

30,000

40,000

198219

83198

4198

519

8619

87198

8198

919

9019

91199

2199319

94199

5199

6199

719

98199

920

0020

01200

220

0320

0420

05200620

0720

08200

9

Average LME Ni price

Average marginal cost of production

8

The Ni bubble of 2007 was fuelled by a number of factors though the

bubble itself was a result of speculative buying and ‘herd mentality’

Source: MB, Hatch Beddows

LME Ni price ($/tonne) Drivers of short-term Ni price

� Supply / Demand balance

� Stockpiles, strikes, natural disasters

� Stainless production, financial crises / recession

� Expectations

� Alloy surcharge mechanism

� Speculation

� Dollar weakness

� Against Ni-producing countries

� Input costs

� Oil price, sulphuric acid


0

10,000

20,000

30,000

40,000

50,000

60,000

Aug

04Feb

05A

ug 05

Feb 06

Aug 06

Feb

07A

ug 0

7Feb

08A

ug 0

8Feb

09Aug

09

9

The supply / demand balance for nickel has an effect on nickel prices,

although recent years show that other factors matter

Source: MB, Hatch Beddows

Supply / Demand balance for finished Nikt

LME Ni price ($/tonne)


0

10,000

20,000

30,000

40,000

50,000

60,000

Aug

04Feb

05Aug

05Feb

06A

ug 06

Feb 07

Aug

07

Feb 08

Aug 0

8Fe

b 09

Aug

09

-60

-40

-20

0

20

40

60

80

100

120

2004

2005

2006

2007

2008

2009

10

The weakening of the US dollar also pushes Ni prices higher

Source: Oanda, Hatch Beddows

Indexed dollar value vs. LME Ni price

0

20

40

60

80

100

120

140

Aug 0

4Ja

n 05

Jun

05N

ov 0

5Apr

06

Sep 0

6M

ar 0

7Aug

07

Jan

08Ju

n 08

Nov

08

Apr 0

9Sep

09

Mar

10

Aug 1

0

0

10

20

30

40

50

60

$ / RUB $ / CAD LME Ni (RHS)

$’000/tonne

Effect of $ weakness on Ni prices

� Priced in dollars

� No US production of Ni

� Ni Production in non-$ countries

� Ni Production in countries with ‘floating’ FX rate

� Dollar weakness

� Falling revenues for Ni producers

� Need to increase $ price of Ni to compensate

� Conclusion

� Visible correlation, r = -0.6

� Large movements driven more by short-term market conditions

Aug ’04 = 100


11

As a major component of production costs, the rise in oil prices over

recent years has also fed through to Ni prices

Source: Company reports, EIA, Hatch Beddows* via EAF

Ni mining and processing costs, 2009

0

20

40

60

80

100

120

140

160

Jan 01 Mar 03 May 05 Jul 07 Sep 09

0

10

20

30

40

50

60

Oil Ni

$/bbl$’000/tonne

Ni and oil price


0%

20%

40%

60%

80%

100%

Russia Australia Canada Indonesia China NPI*

Fuel Labour

Maintenance / Overheads Raw materials

12

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2020

Long-term stainless steel production will move toward 40Mt by 2020.

Further substitution is possible but most of this has already taken place

Source: ISSF, Hatch Beddows

Stainless steel production

40%

45%

50%

55%

60%

65%

70%

75%

80%

2001 2003 2005 2007 2009

% 300-series

2020

300-series ratiokt


13

The next wave of investment could add more than 500kt of capacity

Source: Company reports, Hatch Beddows

28ktLateriteRavensthorpe

50ktSulphideTalvivaara

63ktLateriteGladstone (?)

46ktLateriteVermelho (?)

22kt

30kt

23kt

Laterite

Laterite

Laterite

Shevchenko (?)

Taganito

Tagaung Taung

31ktLateriteRamu

10kt (?)SulphideEagle (?)

Laterite

Laterite

Sulphide

Laterite

Laterite

Laterite

Laterite

Laterite

Laterite

Ore type

60kt

52kt

12kt

40kt (?)

60kt

60kt

23kt

36kt

60kt

Capacity

Koniambo

Ambatovy

Barro Alto

Fenix (?)

Goro

Nonoc (?)

Nunavik

Onca Puma

Weda Bay (?)

2013+201220112010


14

1,000

1,100

1,200

1,300

1,400

1,500

1,600

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Supply Demand

A small nickel supply deficit is expected for 2010 before a return to

surplus, assuming certain projects finally arrive

Source: Hatch Beddows

Supply and demand of finished Ni

forecasts

-60

-40

-20

0

20

40

60

80

100

120

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Supply / Demand balance for finished Ni

forecasts

kt kt


15

0%

20%

40%

60%

80%

100%

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Sulphides Laterites

Nickel is increasingly being extracted from lateritic ores

Source: Vale, Xstrata, Hatch Beddows

Nickel production by ore type Nickel resources by ore type

Sulphides

27%

Laterites

73%

Sulphides Laterites


16

Laterite resources are mainly found in countries that require large

spending on infrastructure…

Source: BGS, Hatch Beddows


17

…and this drives up the cost of developing these deposits


Infrastructure

Power / Acid / Lime plants

TransportationRoad / Sea / Air

Conveyors / Pipelines

Difficulty of terrain / climate

Accommodation

Permits / Compensation

18

Summary of nickel ores and their pros and cons

Source: Hatch Beddows

Nickel ore

LateritesSulphides

• High mining costs

• Underground mining

• Low processing costs

• Proven technology

• Often associated with valuable by-products (Cu / Pd / Pt)

Limonites Saprolites

• Low mining costs

• Surface mining

• High processing costs

• Unproven technology

• Protracted startup

• Expensive materials of construction

• High acid consumption

• Low mining costs

• Surface mining

• Falling processing costs

• Proven technology

• Large-scale operations

• Vulnerable to energy costs

• Slag disposal


19



�Conclusions


Contents


20

� Short-term – Higher Ni prices through 2010, falling thereafter

� Supply deficits for 2009 / 2010

� Stainless production to begin rebound in 2010

� New supplies to arrive, mainly from 2011

� Long-term – Rise in real prices but will it be temporary?

� Greater importance of laterites

� Rise in production costs

� Need for technological developments in processing limonites

Conclusions from 2009


21

� Nickel prices driven by a variety of factors

� Supply / Demand balance to become positive into 2011, assuming projects arrive

� The market is heavily driven by expectations

� Dollar weakness likely to persist or get worse = support for Ni prices

� Oil prices likely to increase = support for Ni prices

� Outlook

� Short-term – support for prices to remain above LT real average of $14-15k/tonne

� Possible impact from physically-backed ETFs

� Any bubble likely to be fuelled by new projects failing to meet expectations

� Long-term – Greater importance of laterites

� Rise in production costs

� Need for technological developments in processing limonites

� Need for different pricing of laterite-based products (e.g. FeNi) and scrap???

Conclusions for 2010


22



�Conclusions


Contents


23

0%

20%

40%

60%

80%

100%

Ni metal Ferronickel Stainless scrap

Ni Fe Cr

Do FeNi and scrap suppliers need to push for more transparent pricing

on Fe units in their products?

Source: Hatch Beddows*Based on a Ni price of $20k/t, an Fe price of $300/t and a Cr price of $2250/t

Content of Ni-bearing materials by value*Typical percentage payable of

different metals in Ni-bearing materials


0%

20%

40%

60%

80%

100%

Ni metal Stainless scrap Ferronickel

Ni Fe Cr

? ??

?

24

Scrap is supplied at a typical discount of 15% over equivalent primary

materials due to a variety of reasons

Source: MB, SBB, Hatch Beddows*18/8 solids delivered Europe**Equal to 18% Cr contract price, 8% LME Ni price and 71% shredded scrap price (Rotterdam fob)

Stainless steel scrap pricevs. price of component metals


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jan

04Aug

04

Mar

05

Oct

05

Jun

06Ja

n 07

Aug 0

7Apr

08

Nov

08

Jun

09Feb

10

Sep 1

0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

STS scrap* (LHS)

Sum of component material prices** (LHS)

Percentage of component prices achieved (RHS)

Stainless steel scrap prices

� Stainless steel scrap appears to be sold at a discount to the equivalent primary materials

� Average discount of ~16% since January 2004

� Why is scrap sold at a discount?

� Presence of residuals

� Not a homogenous product

� Can be awkward to handle and store

� Can damage EAF electrodes

� Can increase melting time

� Highly competitive industry

� Suppliers are price takers, not makers

$/t

25

Ferronickel is supplied at a typical discount of 5% on the equivalent

primary raw materials

Source: Company reports, EIA, Hatch Beddows*Based on Pamco FeNi (18.5% Ni, 75.5% Fe), Ni at 100% payable, Fe at 15% payable**Component prices are LME Ni and shredded scrap price (Rotterdam fob)

Calculated ferronickel pricevs. price of component metals


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Jan

04N

ov 0

4Sep

05

Jul 0

6M

ay 0

7M

ar 0

8Ja

n 09

Nov

09

Sep 1

0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FeNi price* (LHS)

Sum of component material prices** (LHS)

Percentage of component prices achieved (RHS)

Ferronickel prices

� Ferronickel prices understood to be sold at a discount to price of the equivalent primary materials

� Ni units understood to be fully payable although not Fe units

� Fe not priced specifically – but how to price it?

� Instead, a premium is added onto the payable Ni, typically to cover transport costs

� Results in ferronickel producers supplying their products at a 2-8% discount to primary materials

$/t

26

Scrap is sold at a discount for a variety of reasons, yet these reasons do

not generally apply to FeNi – so why the discount?


� Presence of residuals – FeNi can contain Phosphorous/Sulphur/Silicon that may need to be reduced

� Not a homogenous product – FeNi supplied under guaranteed specifications

� Can be awkward to handle and store – FeNi a compact product

� Can damage EAF electrodes – FeNi has less risk of EAF damage

� Can increase melting time – FeNi a compact product

� Highly competitive industry – FeNi supply dominated by 7-8 global suppliers

� Suppliers are price takers, not makers – FeNi supply shocks do affect Ni price

�Does the discount exist because of uncertainty on how to price the Fe units? Iron ore, scrap, pig iron?

Reasons for discount on scrap prices and their applicability to FeNi

27

Hatch London office

Hatch is a member of the HATCH GROUP of companies

�

+44 7540080196Mobile

+44 20 7963 0972Fax

+44 20 7906 5119�

Consultant

Robert Cartman

+44 20 7906 5100 (switchboard)�

9 Floor, Portland House, Bressenden Place, London SW1E 5BH�

[email protected]

Your contacts for further information


a look at nickel price bubbles and ferronickel pricing · pdf filea look at nickel price...

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