Nickel reserves

The question of whether the natural resources of the planet are in danger of being exhausted is sometimes raised. In the case of nickel there appears to be little reason for concern. Nickel is the fifth most common element found on Earth. Only iron, oxygen, silicon and magnesium are more abundant. However, the reserves that can be economically mined are more limited. Nickel reserves refer to proven reserves in land based deposits. Nickel resources (estimated at twice the amount of nickel reserves) encompass sub-economic reserves, i.e. not mineable at a profit.

The development of new process technologies will result in the conversion of some resources into the reserve base. Ongoing exploration continues to add to both bases. According to some sources, nickel resources on the sea-bed are many times those located on land. The land resource base is thought to be in excess of 100 years at the present mining rate.

Nickel Usage

Usage of nickel has increased over time and is correlated with economic development. World nickel demand increased from 1.123 million tonnes (Mt) in 2000 to 1.465 Mt in 2010 and reached 2.385 million tonnes in 2020, with an annual average growth rate of 3.8% since 2000. Since then, the strong growth recorded by the Chinese economy has further accelerated the increase in nickel demand that, from 2010 until 2020, grew at a compound annual average rate (CAGR) of 5%. Asia is now by far the largest regional market for nickel, representing around 82% of total world demand. China alone now accounts for close to 60% of world nickel demand compared with 5.5% in 2000 and 39% in 2010.

Source: INSG, 2021

First Use

Because nickel is usually recycled, a distinction is often made between the use of newly produced metal and recycled scrap. ‘First use’ refers to the destination of newly produced nickel. By far the most important use of new nickel is the production of stainless steels. This use accounts for over two thirds of first use nickel up from one-third in the past three decades. The market for stainless steel is growing at a rate of about 4.6% per annum, which slightly decreases if 2020 is also considered due to the COVID-19 pandemic. Other sectors of first use include other alloyed steels, high nickel alloys, castings, electro-plating, catalysts, chemicals and batteries.

Source: INSG, 2021

Nickel Production

Strong world economic growth until 2007 supported rising production of primary nickel metal. In 2007 world primary production stood at 1.411 Mt. However, the economic crisis led to lower worldwide nickel production in the period 2008 to 2009 and production of primary metal declined to 1.316 Mt in the latter year. Production rapidly recovered in 2010 to 1.442 Mt and increased further to roughly 2.000 Mt in 2013. Between 2013 and 2016, annual production was roughly constant. It has been increasing ever since, hitting almost 2.500 Mt in 2020. On average, the annual growth in production between 2000 and 2010 was 3% and 5.6% in the following decade.

A new product – nickel pig iron (NPI) – started to be produced in China in 2005 in different forms and grades. Production increased slowly in the first few years but in 2010 production was estimated at over 160,000 tonnes and in 2020 at about 505,000 tonnes. Indonesia started NPI production in 2014. With rapid project developments and quick ramp-ups, it reached around 605,000 tonnes of nickel contained in NPI by 2020. Practically all of this product is used in China and Indonesia in the production of stainless steel and has replaced traditional products like nickel metal and stainless-steel scrap.

In addition to new NPI production in China and Indonesia, several other nickel projects around the world started. Two of the most relevant examples are the Indonesia Morowali Industrial Park, where a capacity of over 213,000 tonnes has been installed and ramped up since 2014 and the more recent Indonesia Weda Bay Industrial Park where a capacity over 90,000 tonnes is already running, with more to be added over the next few years.

Source: INSG, 2021

Global Market Balances

The last decade was marked by constant imbalances within the primary Nickel market. The slow healing of the global economy in the early 2010s fostered investment in Nickel operations throughout the world, with China playing a significant role towards the increase of the primary nickel production. After 2 consecutive years in deficit, the market registered a 92.000 tonnes surplus in 2012. China alone more than tripled primary Nickel production, registering 693.500 tonnes produced within the country in 2013 compared to 200.300 tonnes in 2008. The surplus in the market lasted until 2016, although production was increasing due to large Indonesian projects, the growth rate was much less than demand growth as nickel usage surpassed the 2 million tonnes barrier for the first time in history. Following 2016, three consecutive years of deficit were recorded, illustrating the producers’ inability to meet demand. Deficits were around 142.000 tonnes for 2017 and 2018, preceding plummeting in demand that explains the lower deficit in 2019 of 34.500 tonnes.

Source: INSG, 2021

Prices and Stocks

The price of nickel has shown considerable volatility over the last forty years. The chart below shows the historic LME price for nickel in nominal values from 1991 to 2021. In the late 1980s there was a peak in the price of nickel. In the first half of the 1990s the economic collapse of the former “Eastern Bloc” countries resulted in a surge of nickel exports that drove nickel prices lower than the cash costs of production resulting in reduced nickel production in the “West”. Until 2003 the nickel cash price remained below $10,000 (USD/tonne). The price breached $14,000 in 2005 and then escalated dramatically through 2006 before peaking at $52,179 in May 2007. Nickel prices then declined until the end of 2008, when the average cash price hit a low of $9,678 in December. In early 2009, nickel prices began to once again climb and reached $24,103 by the end of 2010. In 2011 the price continued to move up and reached a peak in February, with an average price of $28,247. The price then declined to below $14,000 at the end of 2013. With the implementation of the export ban of unprocessed ores in Indonesia in January 2014, the nickel price climbed to just below $20,000 in July 2014, but then declined almost every month until February 2016 to be traded at around $8,300. After this trough, a year of volatility at around $10,000 followed and from the end of 2017, monthly average prices have consistently surpassed $10,000, showing a rising trend and a peak at $15,111 in June 2018. After 2018, Nickel prices have been roughly stable when compared with the annual averages, fluctuating around $13,500, however significant month-to-month deviations cannot be ignored. After peaking at $17,673 in September 2019, Nickel prices suffered a massive drop to $11,753 in April 2020, this price reduction probably reflects the impact of the Covid-19 pandemic on Nickel demand. With several construction projects in standby, stainless steel usage was hugely affected. The rapid Chinese economic recovery during the second half of 2020 was a major driver behind the increase in nickel prices which reached 18,568$ in February 2021.

LME stocks of nickel were relatively stable during the period 2001 to 2005 at around 20,000 tonnes. In 2005 stocks increased somewhat and again declined in 2006. During the period 2007 to 2009 stocks rapidly increased to over 158,000 tonnes at the end of the period. In 2010 and 2011 destocking took place with stocks at the end of December 2011 at 91,000 tonnes. Since the beginning of 2012 to March 2016 a long period of restocking took place, reaching over 470,000 tonnes in June 2015. In the second quarter of 2015, the Shanghai Futures Exchange (SHFE) launched their nickel contract and stocks have risen there to a level of 73,000 in March 2016. By the end of March 2016, combined LME and SHFE stocks were over 500,000 tonnes. A period of destocking then started, that became more accentuated in the beginning of 2018. By the end of 2018H1, inventories at LME and SHFE registered warehouses combined were under 300,000 tonnes. After 3 years of destocking, Nickel inventories reached a 5-year low of 90,952 tonnes in the end of 2019 (LME and SHFE combined). After the demand drop and consequent decrease in price due to the pandemic, stock levels started to escalate, reaching a peak of 272,096 tonnes in August 2020.

Source: LME and SHFE

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