Nickel emerged as a base metal with resilient demand with price averaging USD 14,927 a tonne during the September 2019 quarter amid unexpected production outages and Indonesia’s announcement of an export ban to be introduced in 2022, which has supported ASX-listed nickel stocks as the miners have commenced the expansion plans to take advantage of the rise in nickel prices.
Nickel prices were deeply supported by the fall in stocks across the LME (London Metal Exchange) registered warehouses with LME stocks reaching lowest level in six years, which kept the market undersupply for the fifth year.
Nickel LME spot price and inventories (Source: DIIS)
The global consumption of nickel remained relatively stable despite the ongoing bilateral trade tensions between the United States and China. During the first half of the year, the world refined nickel consumption surged by 4.6 per cent on Y-o-Y basis. China, which is the world’s largest nickel consumer amid high use in the steel industry, supported the global consumption during the first half of 2019 with a 9.4 per cent Y-o-Y increase.
The Australian Department of Industry, Innovation and Science (or DIIS) anticipates the global consumption to grow at an average of 3.3 per cent to stand at 2.6 million tonnes during 2021 against the consumption of 2.3 million tonnes in 2018.
The DIIS further forecasts that nickel consumption would increase by 2 per cent on an average, a year in China with engineering and manufacturing activity in other markets like the United States, Japan, etc., supporting further demand.
The global mined nickel production, which soared by 9.1 on a Y-o-Y basis during the first half of 2019, would grow further from 2.4 million tonnes in 2018 to 2.8 million tonnes in 2021, which would mark an average increase of 5.5 per cent a year.
The global refined nickel production is anticipated by the DIIS to grow at an average of 6.1 per cent a year to stand at 2.6 million tonnes in 2021 against 2.2 million tonnes in 2018. The new mine projects in China and Indonesia are forecasted by the DIIS to add 130,000 tonnes and 93,000 tonnes of new capacity, respectively by 2021.
Indonesia Export Ban
The Indonesian Government announced in late August that the nation would ban the export of nickel ore from January 2020, which immediately impacted the prices of nickel in the global market and holds a potential to change the fundamentals of the nickel market, as Indonesia is the top supplier of nickel ore for the steel industry.
Indonesia, which exported about 120,000 tonnes of nickel during the first half of 2019 and accounted for 26 per cent of the overall global production in 2018, could remove about a 10 per cent of nickel ore from the world market with the ban.
Due to the very same reasons, the DIIS estimates that the nickel prices would average USD 13,800 a tonne in 2019 before climbing up by over 19.50 to average at USD 16,500 a tonne in 2021.
Australia Nickel Outlook
Australia is the sixth-largest nickel miner in the globe with a production of over 200,000 tonnes a year, which accounts for 10 per cent of the world nickel production.
Nickel mined production soared by 14 per cent on a Y-o-Y basis during the September 2019 quarter amid the ramp-up in production by the Australian miners to take advantage of the price increase.
The DIIS anticipates the mine production to increase further to reach 207,000 tonnes in 2020-21 against the mine production of 150,000 tonnes in 2018-19. The ramp-up production from Panoramic Resources Limited (ASX: PAN) at the Savanah mine in Western Australia supported the nickel production during the September 2019 quarter; likewise, the high nickel prices are expected to support the investment activities across the nickel prospects of the Australian miners.
Ahead of 2021, the nickel production could further increase supported by the Yakabindie operation of the Australian giant- BHP Group Limited (ASX: BHP), which is expected to commence in late 2022 as well as the potential restart of Black Swan Mine owned by Poseidon Nickel Limited (ASX: POS).
The refinery nickel production in Australia is anticipated by the DIIS to grow at 9.1 per cent a year to stand at 141,000 tonnes in 2020-21 against the 2018-19 production of 114,000 tonnes with de-bottlenecking projects expected to support the growth.
The Australia export earnings are expected by the DIIS to boost up amid higher export volumes and increase in the average price. The DIIS forecasts the export earnings to grow at an average of 8.7 per cent a year to stand at $5.6 billion in 2020-21 as compared to $3.6 billion in 2018-19.
While the prices have been forecasted to increase to average at USD 16,500 a tonne in 2021, the export volumes are anticipated to surge from 223,000 tonnes in 2018-19 to 280,000 tonnes in 2020-21.
Australia’s nickel export volumes and values (Source: DIIS)
Nickel Expansion and Restart Plans of the Australian Miners
Mincor Resources NL (ASX: MCR)- the Australian nickel miner recently raised $35 million to support the nickel development and exploration momentum at the Kambalda prospect. Apart from a successful placement of $30.0 million (before costs) to strategic investors, institutions and other sophisticated and professional investors, the company planned for a Share Purchase Plan (or SPP).
The Share Purchase Plan would be closed once the company raises $5.0 million, and the existing shareholders of the company, Independence Group NL (ASX: IGO) and Squadron committed a further $2.0 million and $7.2 million, respectively.
The company intends to accelerate the development and expansion of regional high-grade sulphide at the Kambalda mining district, and also a Definitive Pre-Feasibility Study (or DFS) is planned for March 2020 quarter.
Likewise, many other nickel miners on ASX such as Independence Group NL are either expanding the production capacity or restarting the developments across their prospects to take advantage of the current high nickel prices, and also to take a leap with the change in global demand trend for nickel.
Once again, the Australian miners seems to be competent with their ability to produce and focus on right commodity, in terms of higher expenditure, and at the right time.
To Know More, Do Read: Are ASX Resource Stocks Producing Right Commodity at the Right Time?
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