Summary: Fitch, a financial risk management company, said the international refined nickel production and trade market will change over the next decade, as China runs a huge nickel deficit driven by its electric vehicle (EV) success story, while Russia's nickel surplus slowly declines due to a weak project pipeline, opening opportunities for other producers.
According to Mining Weekly (miningweekly.com), Fitch, a financial risk management company, said that as China posts a huge nickel deficit driven by its electric vehicle (EV) success story, and Russia's nickel surplus slowly declines due to a weak project pipeline, opportunities open up for other producers, and the international refined nickel production and trade market will change over the next decade.
The company further noted that Indonesia will be one of the best-performing countries in the coming years, as its favorable geographical position and rising domestic refined nickel capacity put it in a good position to meet China's demand.
In addition, rising nickel production in Japan in the coming years will sustain the growth trend in its exports of unwrought nickel to the world's top nickel-consuming countries, while the UK and Norway will also have opportunities to increase production, as falling European imports from Russia allow other top European nickel producers to fill the gap.
Fitch said China's growing EV market will keep the country's production balance in deficit, increasing demand for imported refined nickel.
The company also expects increased EV manufacturing and stainless steel production to drive China's widening production balance deficit. Fitch noted that China's EV market in particular will become an increasing source of global nickel demand in the coming years, as nickel is widely used in batteries that power electric vehicles.
"Our automotive team forecasts that China's EV sales will grow by an average of 10.1% through 2029." Rising nickel demand will offset the expected growth in China's refined nickel production and support a wider gap in average nickel output.
Fitch said China's average nickel production deficit will increase to 244,000 metric tons during 2020-2029, compared with an estimated average deficit of 204,000 metric tons during 2010-2019.
In this regard, the company noted that the huge deficit will support growing demand for refined nickel imports. "We expect that the opportunity to fill China's production balance deficit will stimulate increased smelting capacity, especially in Indonesia." As domestic manufacturing demand for refined nickel grows, smelters will seek to take advantage of this opportunity.
However, Fitch forecasts that domestic smelting capacity growth will not be enough to supplement this growth, thus requiring more refined nickel imports. In particular, the company expects Indonesia to raise its refined smelting capacity in the medium term to meet China's demand.
In addition, Fitch noted that the Indonesian government recently implemented a nickel ore export ban in January to pursue vertical integration in the nickel industry, where refined nickel exports are a higher value-added product.
On the production side, Fitch noted that Indonesian miners must now raise smelting capacity in order to resume exports or sell ore to domestic smelters. In this regard, as Indonesia's nickel smelting capacity grows, it will be well positioned to meet China's growing demand due to geographical proximity.
Fitch forecasts that Indonesia's refined nickel surplus will grow from about 24,000 metric tons in 2019 to 100,000 metric tons by 2029.
As for Japan's nickel production, Fitch noted that Japan will continue to see refined nickel export growth, as rising domestic production in the coming years will push the country into a production surplus.
Japan's refined nickel production is expected to grow, as rising nickel prices and some import tariffs keep the industry competitive.
The company noted that overall, Japan's nickel production will remain at home for domestic industrial consumption. However, it expects Japan to see a production surplus as production growth outpaces consumption growth in the coming years, forcing smelters to export overseas.
In fact, from 2011 to 2019, the country's nickel exports grew by an average of 10.4% year-on-year, reaching 20,000 metric tons in 2019, with exports to other major nickel consumers such as the United States and India also increasing.
Trade Map data shows that in 2019, the US and India purchased 16.6% and 12.5% of Japan's unwrought nickel exports, respectively, up from 0.7% and 7.3% in 2011. Fitch noted that India in particular will see increased demand for nickel imports due to its widening nickel trade deficit.
Fitch said the decline in Russia's surplus production will also allow major European nickel producers such as Norway and the UK to fill the gap in the European nickel market.
"We expect Russia's refined nickel production growth to begin to stagnate and decline in the coming years, as a weak project pipeline hampers significant growth in the country's refined nickel output." This will lead to a reduction in the production surplus to 172,000 metric tons during 2020-2029, compared with 209,000 metric tons during 2010-2019.
Fitch noted that Russian nickel mainly supports the European market, accounting for 99.4% of unwrought nickel exports in 2019. Most of this is exported to the Netherlands, which is a major payment hub for other European countries.
The company said that as Russia's nickel surplus narrows, this will provide a small opportunity for other European producers to fill the gap. "We currently expect nickel production in both Norway and the UK to rise slightly. Norway and the UK are the 6th and 13th largest nickel producers, respectively."