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Roskill: automotive batteries and stainless steel to drive nickel demand

In its new ten-year market outlook to 2027, Roskill, a leading provider of international metals and minerals research, forecasts primary nickel consumption to rise by just under 4% per year between 2017 and 2027, driven by increased consumption by stainless steel producers and by growth in demand in the automotive battery sector.

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 the forecast period, due to rising output in China and Indonesia. Mills in these countries rely heavily on primary sources to obtain the nickel units they require, unlike producers in regions such as the EU, or the USA and India, where the use of scrap dominates.

Despite this growth, the stainless steel sector’s share of nickel consumption is set to decline over the coming decade because of the rising importance of the battery sector. While nickel has historically been used in batteries for portable electronics, most of the recent growth and excitement in the battery sector has come from automotive applications.

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Two-year LME cash price chart for nickel. Click to enlarge.

Roskill expects sales of purely fossil-fuelled cars to start declining, even as sales of all types of vehicles continue to rise. By 2027, Roskill forecasts that EV sales (including BEVs, plug-in hybrid EVs, fuel cell EVs and low speed EVs) will account for nearly 30% of the total.

Non-plug-in hybrids, 48V mild hybrids and 12V micro hybrids are expected to account for further sales. Combining these sales projections with those for PHEVs, FCEVs, LSEVs and fully-electric vehicles, Roskill expects that close to 70% of new passenger sales will have some degree of electrification by 2027.

Hybrid electric vehicles (HEVs) such as the Toyota Prius have been an important market for nickel metal hydride (NiMH) batteries. However, the best current 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.

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 Roskill also expects to occur during the forecast period. This will give demand for nickel in the battery industry a double-boost.

Roskill expects primary nickel demand in batteries by 2027 to be above 500kt per year. Although this is still only a third of the consumption by the stainless steel sector, the increase in demand from this sector will be greater than the rise in consumption by stainless steel mills, even in terms of tonnes. Primary nickel demand in the battery sector is forecast to rise by more than 20% per year between 2017 and 2027.

Supply growth to come mainly from China and from Indonesia. Since 2014, supply growth has lagged demand growth, as weak nickel prices have dissuaded investment in new capacity and led to some capacity closures. As a result, the market has moved from a structural surplus into deficit, with 2017 being the second year in succession that demand has been above supply.

Although producers have shied away from investing in new capacity, there have been some exceptions. In recent years, Chinese producers have been investing heavily in nickel pig iron (NPI) plants in Indonesia. The country had been the major source of laterite ores for Chinese NPI plants, but in 2014, the Indonesian government banned the export of unprocessed ores, in a move designed to stimulate domestic investment.

This tactic was successful: in 2014 Indonesian primary nickel production was around 24kt, but Roskill expects this to have reached more than 170kt in 2017, due to the commissioning of new plants. By 2027, Roskill expects Indonesian refined production to have risen to more than 550kt.

Despite attracting investment, Indonesian authorities wrong-footed the market in early 2017 and chose to allow the export of low-grade ores, albeit with some conditions. As a result, not only has Indonesian capacity risen, but Chinese NPI plants will also have access to greater quantities of ore than they had in recent years. This should also allow local NPI producers to increase output and by 2027 Roskill expects primary nickel production to be some 140kt higher than in 2017.

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 sulfate.

Recently, BHP Billiton decided to add a sulfate plant at its existing Kwinana refinery 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.

Roskill believes that 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 upshot is that the LME (London Metal Exchange) 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.

The nickel market is set to register its second-successive deficit in 2017. However, the LME nickel price remains low by historical standards. A succession of market surpluses up to 2015 have left reported nickel stocks at near-record highs, equivalent to 9.9 weeks of consumption. Market surpluses in the middle of the forecast period will drag prices down before renewed deficits at the end of the forecast horizon push prices higher again.

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