Global Nickel Industry

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Overview

Global nickel industry was supported by the world economic growth until 2007 with rising production of primary nickel metal. However, economic crisis affected the worldwide nickel production in 2008 & 2009 and production declined to 1.32 Million Metric Tons in 2009.

In 2010, primary nickel production recovered rapidly to 1.45 Million Metric Tons and since then the pro-duction is growing continuously. It is estimated that production will reach around 1.86 Million Metric Tons by the end of 2013, growing at a CAGR of around 9% during 2010-2013.

Nickel production is anticipated to grow at a CAGR of around 6% during 2013-2017 with opening of more mines leading to more nickel production.

Europe and Asia are the leading regions for the nickel production across the world. In 2012, both the regions accounted for more than 70% of the total global primary nickel production.

2012 2013e

1.76

1.861.97

2.092.21

2.34

2014f 2015f 2016f 2017f

Source: International Nickel Study Group (INSG), RNCOSNote: e/f = RNCOS Estimation/Forecast

Figure 1: Global Primary Nickel Production (Million Metric Tons), 2012-2017

Source: INSGNote: Data is estimated

Figure 2: Global Primary Nickel Production by Region, (%), 2012

Europe

AmericaAfrica

Oceania

Asia

16.9%10.1% 2.4%

41.4%

29.2%

Nickel Consumption

In future, with rising stainless steel production, nickel consumption is anticipated to grow at a CAGR of around 6.7% during 2013-2017. Like production, Asia and Europe also account for high-est nickel consumption in the world. In Asia, the primary nickel consumption is more than its production leading to imports from other countries. In 2012, Asia accounted for more than two-third of the global primary nickel con-sumption, followed by Europe and Oceania.

Since 2010, primary nickel consumption is also increasing continuoulsy and reached 1.65 Million Metric Tons in 2012. However, the nickel consumption is less than the produc-tion, leading to surplus due to lack of demand for the metal.

Source: INSG, RNCOSNote: e/f = RNCOS Estimation/Forecast

Figure 3: Global Primary Nickel Consumption (Million Metric Tons), 2012-2017

2.022.16 2.29

1.89

1.77

1.65

2012 2013e 2014f 2015f 2016f 2017f

Source: INSGNote: Data is estimated

Figure 4: Global Nickel Consumption by Region (%), 2012

66.5%

21.6%

1.5%0.2%

10.2%

Europe

AmericaAfrica

Oceania

Asia

Nickel, through its various uses, plays a large part in the development of capital infrastructure in economies worldwide. The metal is widely used in aerospace, architectural, consumer, industrial, marine, military and transport applications. The manufacturing of stainless steels accounts for about 66% of nickel use, followed by non-ferrous metal products (12%) ands plating (7%).

Figure 5: Global Nickel Use by Sector (%), 2012

Source: Metal world

Stainless Steel

Plating

Other Alloy Steels

Non-ferrous Metal Products

Steel CastingsMetal Products

Other Uses

12%

7%

4%

5%6%

66.5%

• Stainless steel production - Stainless steel accounts for the highest nickel consumption and accounted for around 66% of the total nickel use in 2012

• Nickel consumption in China - China accounts for around half of the world’s nickel con-sumption and in 2012, consumption rose 19% compared to the previous year.

• Technological transformation - To reduce production cost, the nickel players are focusing on technology transformation for nickel production that will help them to increase their produc-tion at low cost.

• Government support - The global regulatory sentiment saw an increased emphasis on en-hancing nickel mine and NPI production. For instance, Brazil’s northern state of Para has reduced the extraction tax on mining activity from three UPF’s (Standard tax unit) to one UPF for each extracted tonne of ore. Similarly, government of Inner Mongolia (China) has announced discounts on electricity fees for NPI producers in the region.

Market Driving Factors

Nickel-based battery Nickel-based battery market is likely to cross US$ 7.5 Billion by end of 2017 which will increase the nickel usage in future. This will be driven by rising demand for portable computers, electronic devices, medical equipments and electric vehicles.

Nickel-based super alloys Strong growth in demand for nickel alloys from aerospace industry (23% forecast increase in airline deliveries, 2012-2020), power generation and oil & gas markets.

Growth in Construction MarketGlobal construction output is anticipated to grow from US$ 8.7 Trillion in 2012 to US$ 15 trillion by 2025. This will create the demand for stainless steel which in turn will create the demand for nickel.

Opportunities

Opportunities & Challenges

Volatility in Prices In 2012, the nickel market largely underperformed with price for the metal having slumped by 30% in the middle of the year. So far it looks like this year (2013) will not be better either, as prices have fallen 19% till August, 2013. Prices are down 38% at from the peak of US$ 22,150 per Metric Ton last year, trading close to four-year lows due to too much supply and limited demand.

Lack of Demand The gradual slide in nickel demand is due to number of factors including the fact the Chinese aren’t purchasing as much nickel. That’s because China’s economy is slowing as their biggest customers, the US and Europe, are trying to claw their way out of financial problems.In China, the use of stainless steel scrap by consumers is increasing which is affecting the primary nickel demand.

The economies in the US and Europe are also stagnating, impacting demand for nickel. At the same time, large mining companies around the world are bringing new mines on line, which is adding to the supply surplus.

Production from nickel mines is set to outstrip global demand for the second year in a row. Inven-tories of nickel in warehouses have increased by 85% in the past year to a record high, painting a bearish picture for nickel demand.

Product SubstitutionIn Europe & North America, nickel scrap units are replacing primary nickel in not only stainless steel, but also in alloyed steel and high nickel alloys where possible.

In China, Nickel Pig Iron (NPI) is replacing primary nickel and to some extent stainless steel scrap due to cost and easy availability.Similarly, in India, nickel scrap units are increasing faster than primary nickel in stainless steel.

Tax System in IndonesiaIndonesia enacted an export tax system, effective from May 6, 2012, under which a 20% export tax is levied on 14 raw ores of Indonesia origin, including nickel, with an exception for miners that plan to build local processing facilities.

This final move will devastate the supply of laterite nickel ore in China and drive the nickel price dramatically upward.

Challenges

Global nickel industry future is facing tough time as companies continue to re-evaluate their existing projects and options. Some nickel miners have formally announced that they are cutting production or capacity, while others have already reported significant asset impairment charges. Technical issues, high capital costs and lower nickel prices are principal reasons for the current situation.

However, the industry has been focusing on developing projects of very large size to earn economies of scale. As such, the projects are experiencing significant technical difficulties. All these factors are con-tributing to high capital costs. The companies need to reduce their production of the metal due to lack of demand. If such reductions take place, and the excess supply in the market is cornered, nickel may stand a chance of avoiding a performance as disappointing as last year’s.

With recent concerns expressed by producers on falling nickel prices, and gradual announcements of cuts in production and the consumption is affecting the future growth of the industry.

However, it is expected that consumption is expected to grow due to an increased demand for stainless steel in the emerging economies of China, India and Asian countries in the coming years. Expansion of urban infrastructure, housing developments and ongoing industrialization and urbanization is expected to result in increased demand.

Moreover, nickel based alloys and batteries will create demand for the metal and support the future growth of the industry.

F uture Outlook

MMC Norilsk Nickel

Vale SA

Jinchuan Group Ltd

Xstrata Plc

BHP Billiton Ltd

Sumitomo Metal Mining Co

Eramet SA

Anglo American Plc

Major Nickel Producers

Figure 6: Global Top Ten Refined Nickel Producers, (%), 2011

Source: CRU Group

OAO GMK Norilsk Nickel 286

Vale SA 206Jinchuan Group Ltd 127Xstrata Plc 106BHP Billiton Ltd 83Sumitomo Metal Mining Co 65Eramet SA 54Anglo American Plc 48Sherritt In ternational Corp 35Minara Resources Ltd 30

Company Production (‘000 Metric Tons)

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