Nickel demand on torrid pace

The consumption of nickel is dominated by the stainless steel sector, which accounts for roughly 70% of demand for primary nickel. Since a small dip in 2001, world output of stainless steel has increased at an average of 10% per year, driven largely by China, where growth has averaged over 50% per year over the same period. The new report from London-based market analysts Roskill, notes that China, at these growth rates, will overtake Japan as the world’s largest primary nickel consumer, possibly as early as 2006.

The Economics of Nickel (11th Edition, 2006), published by London-based Roskill, forecasts that the outlook for nickel demand is one of higher-than-average growth, when compared with that of other base metals. If the 5% per year growth in stainless steel production forecast by the International Stainless Steel Forum in 2005 proves correct, then demand for nickel in stainless steel is likely to grow at between 3% and 5% over the same period.

New nickel projects

There are a number of potential nickel mining and refining projects in various stages of development, as well as some expansions at existing facilities that should ensure continued growth in supply of primary nickel through 2010. If all major projects were to go ahead, nickel supply could increase by as much as 500,000 tonnes per year — or about 40% of current annual nickel production. However, most projects are not due to come on-stream until sometime in late 2007 or early 2008 — if everything goes as scheduled — and there are still questions looming over some of the larger projects, such as Gag Island and Weda Bay in Indonesia.

With a small surplus forecast for the nickel market in 2006, Roskill expects the average nickel price to fall to around US$12,000 per tonne in 2006 from almost US$15,000 per tonne in 2005. After that, Roskill expects a balance between nickel supply and demand, but with continuing growth in both the world economy and steel markets, Roskill expects a steady increase in nickel prices in step with economic growth. This should continue until 2009 and 2010 when the deficit in the nickel market could increase markedly; as a result, Roskill believes the nickel price will end 2010 at about US$16,500 per tonne.

The major recent development on the supply side for nickel is Inco’s proposed takeover of Falconbridge. If the takeover receives shareholder and regulatory approval, the “new” Inco will be the world’s largest nickel producer and the sixth-largest mining company. The combined production of Inco and Falconbridge in 2005 is estimated at over 330,000 tonnes, accounting for 25% of world refined nickel output.

Demand in end-use markets

Despite short-term downturns in the aerospace and electronics industries, demand for nickel in high performance and special performance alloys is expected to continue to recover steadily in the medium term. The superalloy sector is forecast to increase at around 5% per year on the back of more optimistic predictions for growth in civil air traffic.

Of the more minor end-uses, consumption of nickel in plating and other alloy steels is not expected to grow at much more than 2% per year. In contrast, the battery market continues to offer strong growth, albeit from a smaller base, and offers significant upside potential in the longer term if, as is likely, large nickel-metal hybride batteries become the future battery of choice in electric or hybrid electric vehicles.

World nickel reserves

The world reserve base of nickel, compiled by the U.S. Geological Survey in 2005, is 140 million tonnes — around 100 times annual production in 2004. Australia, with 19%, Cuba (16%) and Canada (11%) have the largest resources, while Indonesia, New Caledonia and South Africa each have around 9% of global reserves.

World production totalled 1.32 million tonnes in 2004, the highest output ever recorded. Twenty-two per cent of that amount came from Russia, Canada produced 14%, Australia 12%, Indonesia 10% and New Caledonia 9%. Meanwhile, 10 companies or states controlled 75% of world nickel production. In 2005, Norilsk Nickel in Russia was tops with 18%, Inco in Canada and Indonesia (13%) and WMC (now part of BHP Billiton) in Australia (9%) were the main producers.

— The preceding is an edited version of an information bulletin published by Roskill, a London-based market analyst.