abare.gov.au - Australian commodities – June quarter . volume 15 . number 2 2008

Nickel

Nickel prices averaged US$28 770 a tonne in the first four months of 2008. For 2008 as a whole, the nickel price on the London Metal Exchange is forecast to average around US$27 000 a tonne, 27 per cent lower than the record achieved in 2007. However, a recovery in demand and a relatively tight production-consumption balance are expected to contribute to prices remaining above the long term trend.

Fall in nickel price limited in 2008 and 2009

In early 2008, the price of nickel was supported by rising chromium prices, a decline in nickel pig iron production and an increase in demand from stainless steel producers. Rising nickel production at new mines, scheduled to commence from mid-2008, is expected to increase nickel supply in 2009. As a result, prices are forecast to average around US$22 000 in 2009, 18 per cent lower than the forecast average in 2008.

High nickel prices in 2007 encouraged stainless steel producers to produce ferritic stainless steels. These steels contain less nickel and more chromium than austenitic stainless steels, which have historically had the largest market share. As a result, chromium prices have risen and the incentive for further substitution away from austenitic stainless steel has diminished, providing support for nickel consumption.

Further limiting the fall in the nickel price have been rising input costs, particularly for nickel pig iron. As coal prices increase, the marginal cost of producing nickel pig iron rises as it is produced by smelting low grade nickel ores in blast furnaces. A nickel floor price of US$22 000 is expected to be sustained until enough nickel can be obtained from new mines or other conventional sources to replace the supply of nickel pig iron.

Nickel prices started to decline from a high of US$54 000 a tonne in May 2007. Since August 2007, the price of nickel has been less volatile, fluctuating between US$25 000 and $35 000 a tonne. In 2008, the price of nickel is forecast to average 27 per cent lower than in 2007, as a result of lower prices in the first half of 2008 compared with 2007 and slowly declining prices from May 2008.

As seen in the graph, nickel prices increased throughout 2006 and in the first half of 2007, reaching US$54 000 a tonne before a change in the London Metal Exchange’s lending rules prompted a dramatic decline in price. Prices are forecast to remain between US$20 000 and $30 000 a tonne for the remainder of 2008, resulting in a lower average price in 2008 than the previous year.

Consumption growth to resume in 2008

After contracting in 2007, consumption of nickel is forecast to grow by 6 per cent in 2008, to 1.4 million tonnes, and by 8 per cent in 2009, to 1.5 million tonnes.

Manufacturing industries that consume significant quantities of nickel in the form of stainless steel are increasingly moving to China. This trend has been evident from a change in world nickel consumption patterns. Nickel consumption in western European countries fell by more than 20 per cent in 2007. Consumption in the United States, Japan, Chinese Taipei and the Republic of Korea also fell between 7 and 10 per cent. Some of this contraction was the result of record high nickel prices and the slower growth of the United States economy. However, it also reflects the declining competitiveness of manufacturing in western Europe.

In contrast, manufacturing sectors in emerging market economies are expanding. In China, nickel consumption grew by 29 per cent in 2007, with a 27 per cent increase forecast for 2008. Assumed weaker economic conditions in the United States and Europe in 2008 and early 2009 are expected to reduce demand for consumer durables such as whitegoods, a significant proportion of which is imported from China. However, increasing demand from Chinese consumers, as incomes rise and its middle class expands, is expected to offset lower growth of exports and to result in an overall increase in nickel consumption.

Nickel outlook

2006

2007

2008-09

% change

World

Production

1 435

1 478

1 537

4.0

Consumption

1 323

1 399

1 512

8.1

Closing stocks

125

203

228

12.3

– weeks consumption

4.9

7.6

7.9

3.9

Price

US$/t

37 226

26 989

22 125

– 18.0

USc/lb

1 689

1 224

1 004

– 18.0

2006

2007

2008-09

Australia

Production

Mine

192

195

256

31.3

Refined

118

119

122

2.5

Intermediate

– 2.0

Exports s

215

212

236

11.3

– value

A$m

8 381

5 560

5 148

– 7.4

Nickel mine production rising…

A small increase in world nickel mine production is forecast for 2008 with a larger increase projected in 2009. Production is forecast to increase by 1 per cent to 1.6 million tonnes in 2008, with a further 6 per cent increase in 2009, to 1.7 million tonnes.
Relatively high nickel and cobalt prices have increased the incentives for companies to expand existing operations and develop new projects. A number of larger projects commenced production in late 2007 with additional startups scheduled for late 2008. New mines including Ravensthorpe in Australia and Shakespeare in Canada as well as an expansion at Moa Bay in Cuba are expected to contribute to higher nickel production in 2008. Other large projects such as Talvivaara in Finland and Onca Puma in Brazil are scheduled for completion early in 2009, further increasing world nickel mine production.

… despite lower production in some countries

Production in the Philippines, Indonesia and New Caledonia is expected to fall and this decline is expected to offset some of the production gains from new projects elsewhere in the short-term.

In 2007, nickel production in the Philippines increased by 60 per cent, while production in Indonesia and New Caledonia increased by more than 20 per cent. It is estimated that the majority of this increase (some 95 000 tonnes) was in the form of low grade nickel laterite ores used to produce nickel pig iron. Demand for these ores is expected to fall in 2008 and 2009 as the cost of producing nickel pig iron increases and reduces its attractiveness over conventional ferronickel.

Refined production also increasing

Refined nickel production is forecast to increase by 3 per cent in 2008, to 1.48 million tonnes, and by a further 4 per cent in 2009 to 1.54 million tonnes. The completion of the expansion at Yabulu in Australia is expected to add 45 000 tonnes to world refined nickel capacity and to contribute to increased refined nickel production in 2008. However, the unexpected closure of the Kalgoorlie smelter in Australia in the second half of 2008 is expected to offset some of this gain.

Australian production increasing in 2008-09

Australia’s nickel export volumes are forecast to remain largely unchanged in 2007-08. Lower mine production at Minara’s Murrin Murrin, and BHP Billiton’s Nickel West is expected to be offset by production commencing at Western Areas’ Forrestania mine (capacity of 13 000 tonnes a year) and BHP Billiton’s Ravensthorpe mine (50 000 tonnes a year).

However in 2008-09, nickel mine production in Australia is forecast to increase by 32 per cent to 256 000 tonnes. Forrestania and Ravensthorpe are expected to increase production toward capacity and production is scheduled to commence at Zinifex’s Avebury mine in Tasmania (8500 tonnes a year).

Australian production of refined nickel is expected to remain steady in 2007-08 and to increase by 2.5 per cent in 2008-09 to 150 000 tonnes. BHP Billiton announced in mid-June the Kalgoorlie nickel smelter would be shutdown and then rebuilt because of safety concerns, reducing the smelter’s production by around 25 000 tonnes in 2008-09. Disruption to gas supplies to Murrin Murrin as a result of the explosion at Varanus Island will also reduce refined nickel production. However, the completion of BHP Billiton’s expanded Yabulu nickel refinery is expected to more than offset the effects of lower production at Kalgoorlie in 2008-09 as it expands toward its full capacity of 45 000 tonnes.

Terminology

Austenitic stainless steel: Stainless steel with an ‘austenitic’ chemical structure. Nickel content of the most common austenitic stainless steels (the 300 series) is usually around 8 per cent. However, the 200 series which is less widely used contains only between 1 and 3 per cent nickel.

Chromium: An element used in place of nickel to prevent corrosion of steel. Stainless steels that use chromium to reduce the need for nickel to prevent corrosion are referred to as ‘ferritic’.

Ferritic stainless steel: Stainless steel with a ‘ferritic’ molecular or chemical structure. Chromium is the main element used to prevent corrosion with much lower nickel content than austenitic stainless steels. The 400 series stainless steels are ferritic.

Ferronickel: An intermediate nickel product that has a high iron content. It contains up to around 20 per cent nickel. Nickel pig iron is a form of ferronickel but has a much lower nickel content than conventional ferronickel (only 1.5 to 8 per cent).