The nickel market outlook - can the laterite revolution continue?

The nickel market outlook – can the laterite

revolution continue?

July 2013

Jim Lennon

Consultant to:

Macquarie Capital Securities (Europe) Ltd

+44 203 037 4271

[email protected]

In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. Before making an investment decision on the basis of this research,

the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. Please see

disclaimer.

The changing face of the nickel market

Huge needs for new capacity driven by explosion in Chinese demand since 2000

Nickel shortage up to 2006/07 led to three responses:

Growth in 200-series stainless steel (1-2% Ni) as a substitute for 300-series (8-9% Ni)

Processing of low-grade laterite nickel ores into nickel pig iron in China

$30bn+ spent by non-Chinese industry to expand production (including New Caledonia)

In the face of declining sulphide reserves, solution to growth was mainly from using low-grade laterites (limonites) by pressure acid leach processes (PAL) or from higher-grade laterites (saprolites) using conventional ferronickel smelting.

Soaring capex and major technical challenges have made this “solution” economically unviable in the eyes of the industry.

The “new” solution has been the development of low-capex/high opex nickel pig iron (NPI) in China.

Main questions for the market are: Economics of NPI now and into the future – when does this end?; What are the economics of the alternatives? Will we revert back to PAL/FeNi “solution” or there alternatives (e.g., low grade sulphides?).

Take-off of Chinese demand stretched the nickel

supply chain to breaking point in 2006/07

China's nickel demand

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

'000t

pri

mary

Ni

Stainless steel Non stainless applications

Source: LME, Antaike, Macquarie Research, July 2013

LME nickel stocks and price

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

LM

E s

toc

ks

: to

nn

es

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

55000

60000

Pri

ce:

$/t

on

ne

LME stocks LME price

Nickel demand growth is all about China

Changes in stainless steel output by region,

2000-12

-681

-530

-382

-255

1

665

1632

11257

-5000 0 5000 10000 15000

Japan

Europe

N.America

Taiwan

S. America

Korea

India

China

'000t SS

Changes in global nickel use by region,

2000-2012

-65

-50

-42

-19

1

9

20

676

-200 0 200 400 600 800

Europe

Japan

Taiwan

N.America

Korea

S.America

India

China

'000t Ni

Source: INSG, ISSF, Macquarie Research, July 2013

World Ex-China has not recovered from 2008

global financial crisis

World stainless steel output dominated by China

0

5000

10000

15000

20000

25000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

f

'00

0t

SS

China

World Ex-China

Stainless steel production by region

('000t SS)

2007 2012 % change

China 7108 16000 125%

Asia w/o China 9387 8875 -5%

W.Europe/Africa 8017 7329 -9%

Americas 2694 2369 -12%

Central+Eastern Europe 333 362 9%

World ex-China 20431 18935 -7%

World 27539 34936 27%

Source: ISSF, Macquarie Research, July 2013

Primary nickel supply has also been all about China since

2008 – surge in supply too much for market

7 -1 3 12 13 18 7 8

103

62 64

102 86 926850

1820

49

1 256

-37

-103

27

76

55

-7

-110

-90

-70

-50

-30

-10

10

30

50

70

90

110

130

150

170

190

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013F

'000t

ni

China Rest of world Total

YoY growth in nickel production

Source: INSG, Macquarie Research, July 2013

The short term – still awful with more cuts needed – LME

stocks up 51kt in 2012 and 46kt in 2013 YTD

LME nickel stocks and prices over the past year -

surplus!

13000

14000

15000

16000

17000

18000

19000

Ju

l-1

2

Au

g-1

2

Sep

-12

Oc

t-1

2

No

v-1

2

Dec

-12

Ja

n-1

3

Fe

b-1

3

Ma

r-1

3

Ap

r-1

3

Ma

y-1

3

Ju

n-1

3

LM

E c

as

h p

ric

e:

$/t

100000

110000

120000

130000

140000

150000

160000

170000

180000

190000

LM

E s

toc

ks

: to

nn

es

LME price LME stocks

Source: LME, Antaike, Macquarie Research, July 2013

Need for new nickel capacity – subdued in 2000-10 mainly by use

of 200 series stainless, but lots of supply growth now needed • Major surge in nickel use

from 2000-2006 driven

mainly by china

• Shortage of nickel

prompted switch to 200-

series stainless in China

•Collapse in global demand

in 2009, combined with

substitution led to major

deceleration in demand

growth

•Past three years has seen

surging demand (and

supply) once again

Source: INSG, CSSC, Macquarie Research, July 2013

Nickel consumption growth

120270

93238 215

369 310

59

294

900

370

80

290

105

125

-100

100

300

500

700

900

1100

1950-

60

1960-

70

1970-

80

1980-

90

1990-

00

2000-

10

2000-

06

2006-

10

2010-

13F

2010-

20F

'00

0t

Primary use Demand "lost" by substitution

Chinese found two ways of avoiding an absolute

shortage of nickel after 2007

Source: ISSF, CSSC, Macquarie Research, July 2013

Nickel "shortage" from 2005 led to Chinese "solutions"

0 0 0 1868

13780

274 297 300368 393

431

0 0 0 18

68

139100

345

399 410

525

686

776

0

100

200

300

400

500

600

700

800

900

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

'00

0t

ni

0

100

200

300

400

500

600

700

800

900

Ni use displaced by Chinese 200 SS Chinese nickel pig iron production

Global ratio of 300-series stainless in total

55%

57%

59%

61%

63%

65%

67%

69%

71%

73%

75%

19

90

19

93

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

% o

f to

tal

2003

The changing face of nickel – stagnation in sulphide

production as laterites take off – mine production basis


Laterite nickel mine production takes off

-100

100

300

500

700

900

1100

1300

1500

2007 2008 2009 2010 2011 2012

'000t

co

nta

ined

ni

Indonesia

Philippines

Turkey

Ukraine

Albania

Papua New Guinea

Madagascar

Venezuela

Serbia

Dominican Rep.

FYROM

Aust Laterite

Cuba

Colombia

Brazil

New Cal. (France)

Sulphide ore production stops growing

0

100

200

300

400

500

600

700

800

900

2007 2008 2009 2010 2011 2012

'000t

co

nta

ined

ni

Norway

Kazakhstan

United States

Zambia

Zimbabwe

Botswana

South Africa

China, P.R.

Aust Sulph

Canada

Russian Fed.

New Caledonia has not participated in the laterite ore surge

The growing role of Indonesia and the Philippines

Source: Philippines Mines and Geosciences Bureau, INSG, GTIS, Macquarie Research, July 2013

Mine production overstates the actual impact due to massive ore stocking in China and

also >50% of ore from Philippines not being used as nickel, but iron ore

Indonesia and Philippines share in global mine

production

5%

10%

15%

20%

25%

30%

2007 2008 2009 2010 2011 2012

% o

f w

orl

d m

ine p

rod

ucti

on

Nickel ore production in Indonesia and the

Philippines

-100

100

300

500

700

900

1100

2007 2008 2009 2010 2011 2012'0

00t

co

nta

ined

nic

kel

New Caledonia Indonesia Philippines

The picture on type of ores used in finished nickel

production shows a major shift up in laterites

Finished nickel production by ore type - % share of total

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013F

2014F

2015F

2016F

2017F

% o

f to

tal

Sulphide Laterite

Source: Company data, INSG, Macquarie Research, July 2013

Current main production processes for nickel

Note: excludes leaching processes for sulphides (Talvivaara bioleach in Finland) and limonites (in

Guangxi and Jiangshi in China)

ORE TYPE

UPGRADING

PROCESSING

INTERMEDIATE

PROCESSING

PRODUCT

SULPHIDE

OXIDE

(LATERITE) LIMONITE SAPROLITE

CONC.

PYRO HYDROPYRO

HYDRO

PYRO

MATTE NiS NiCO3 MATTE

HYDRO HYDRO HYDRO

CLASS 1 FeNiCLASS 1 CLASS 1 Ni-OXIDE CLASS 1/2

SMELT

PAL

PROCESS

CARON

PROCESS

NPI


Our estimates and forecasts of nickel production

by process route

Finished nickel production by main process

0

500

1000

1500

2000

2500

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013F

2014F

2015F

2016F

2017F

'000t

Ni

Sulphide - conventional Sulphide bioheapleach Laterite - ferronickel Laterite - Caron

Laterite - PAL Other laterite Laterite - nickel pig iron


Laterite growth dominated by FeNi, PAL and NPI

Much of major sulphide mine investment over past 20 years (Voisey’s Bay, Raglan, Nickel Rim, Mount Keith, Cosmos, Santa Rita, Flying Fox, Nkomati, Lanfranci, FNX, Kevista, etc) was essentially defensive, to offset falling reserves elsewhere.

New mines such as Enterprise, Dumont, etc, will help replace ongoing reserve depletions.

Growth in laterites has come mainly from conventional ferronickel, high-pressure acid leach and Chinese nickel pig iron.

Still further scope for growth in Indonesia, Korea and China (latter two with help of New Caledonian ore?).


Finished nickel production from sulphide ores

0

100

200

300

400

500

600

700

800

900

1000

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

F

20

14

F

20

15

F

20

16

F

20

17

F

'000

t N

i

Conventional sulphide smelting/refining Bioleach

Finished nickel production from laterite ores

0

200

400

600

800

1000

1200

1400

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

F

20

14

F

20

15

F

20

16

F

20

17

F

'00

0t

Ni

Laterite - ferronickel Laterite - Caron Laterite - PAL

Other laterite Laterite - nickel pig iron

Where the finished nickel supply growth has come

from and could come from


'000t Ni Level Level Level Level

1990 2000 2012 2017F*

Sulphide - conventional 658 692 769 829

Sulphide bioheapleach 0 0 13 25

Laterite - ferronickel 178 209 333 493

Laterite - nickel pig iron 0 0 351 370

Laterite - Caron 48 83 82 81

Laterite - PAL 20 53 142 319

Other laterite (leach&smelt/refine) 40 70 82 104

Total 944 1108 1772 2221

% share % share % share % share % share

1990 2000 2012 2017F

Sulphide - conventional 70% 62% 43% 37%

Sulphide bioheapleach 0% 0% 1% 1%

Laterite - ferronickel 19% 19% 19% 22%

Laterite - nickel pig iron 0% 0% 20% 17%

Laterite - Caron 5% 8% 5% 4%

Laterite - PAL 2% 5% 8% 14%

Other laterite (leach&smelt/refine) 4% 6% 5% 5%

Total 100% 100% 100% 100%

* 2017f forecast is before disruption allowance

Share of nickel production by process

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

19

90

20

00

20

12

20

17

F

Other laterite

(leach&smelt/refine)

Laterite - PAL

Laterite - Caron

Laterite - nickel pig iron

Laterite - ferronickel

Sulphide bioheapleach

Sulphide - conventional

Strong growth ahead for FeNi and PAL…but that

has been the case for some time now!

Ferronickel production by producer

-50

50

150

250

350

450

550

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013F

2014F

2015F

2016F

2017F

'000t

Ni

0%

5%

10%

15%

20%

25%

Onca P uma

B arro A lto

Ko niambo

Kwangyang

P rist ina

Kavadarci

Laryma

P o bugsko ye

Lo mo do N iquel

P rato po lis

N iqualandia

P o malaa

Oheyama

H achino he

H yuga

C erro M ato so

D o niambo

F alco ndo

% o f wo rld to tal

PAL production by producer

0

50

100

150

200

250

300

350

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013F

2014F

2015F

2016F

2017F

'000t

Ni

0%

2%

4%

6%

8%

10%

12%

14%

16%

% s

hare

of

wo

rld

pro

du

cti

on

Moa Bay*

Ambatovy

Ramu River*

Taganito*

Coral Bay*

Ravensthorpe*

Cawse*

Bulong

Murrin Murrin

VNC

% of world supply

* intermediate

product only


Stainless industry getting lots more nickel and

(mainly free) iron units now


Nickel-iron units for the stainless steel industry

0

200

400

600

800

1000

1200

1400

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

F

20

14

F

20

15

F

20

16

F

20

17

F

'000t

Ni

30%

35%

40%

45%

50%

55%

60%

65%

% o

f all

ni

used

by s

tain

less s

teel

FeNi NPI Purchased SS scrap FeNi/NPI/SSS ni as % all of all ni in SS

NPI accounted for major share of nickel used in China in

2012 – replacement for scrap use in ROW

Chinese nickel use by type

17%

38%

7%

38%Ni in scrap

NPI

FeNi

Metal/utility/oxide

Nickel use ex-China by type

40%

0%

18%

42%

Ni in scrap

NPI

FeNi

Metal/utility/oxide


Main recent PAL and FeNi projects – late and

expensive PAL '000tpa $m Ferronickel '000tpa $m

Start-up Capacity Capex $/t cap Acid plant Refinery Start-up Capacity Capex $/t cap

Murrin Murrin 1999 40 1700 42500 x x Gwangywang 2008 30 720 24000

Coral Bay Stage 1 2005 12 220 18333 Onca Puma 2011 52 3200 61538

Ravensthorpe original 2007 40 3000 75000 x x Barro Alto 2011 40 1900 47500

VNC (Goro) 2010 60 6000 100000 x x Koniambo 2013 60 5500 91667

Ramu 2012 32 1800 56250 x Taguang Taung Nickel 2012 22 850 38636

Ambatovy 2012 60 5500 91667 x x

Taganito 2013 30 1600 53333

Total above 274 19820 72336 Total above 204 12170 59657

Ravensthorpe reopening 2011 40 740 18500

•Projects running many years late, capex mostly rose 2-4 times above

original estimates and commissioning problems have been major

•Too early to be precise on operating costs but we think the PAL

projects will range from $8,000-15,000/t with an average of $12-13,000/t

while the ferronickel projects range from $8,500-13,000/t with an

average of $10,000/t. Opex estimates much higher than in feasibility.


Nickel pig iron progress by contrast has been

miraculous! The "economics" of new capacity - based on today's parameters

80000

60000

5000

150001300010000

1700013500

29000

2200018000 16500

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

PAL (recent) FeNi (recent) Old NPI New NPI (RKEF)

$/t

on

ne

Capex Opex Incentive price

This is a very rough guide to the economics of new capacity

Source: Company data, Wood Mackenzie, Macquarie Research, July 2013

Long run prices need to be higher…depending on NPI!

Source: Wood Mackenzie, Macquarie Research, May 2012

How industry costs and incentive prices have evolved

Excluding NPI

0

5000

10000

15000

20000

25000

30000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$/l

b p

rices a

nd

co

sts

0

10000

20000

30000

40000

50000

60000

70000

$/lb

ca

pit

al in

ten

sit

y

Average cash costs Incentive price (with 20% capital charge)

90th percentile cash costs Capital intensity new projects ($/lb capacity) RHS

Nickel pig iron – the big unknown Estimates for 2012 output (still!) vary from 290kt to 370kt – very little reporting, lots of

guessing.

Cash costs range from $12-20,000/tonne ($5.45-9/lb) depending on process and location. Costs vary widely.

Costs do vary with nickel price so there is no single price below which supply shuts – indeed costs have fallen sharply (15-20%) since March 2012 (lower carbon and ore prices and new power rebates in Inner Mongolia).

Capacity potential is massive – OVER 400,000 tpa NEW capacity due, mostly Greenfield rotary kiln/electric arc furnace and integrated with stainless mills. Costs will rise as energy prices rise and RMB appreciates but new plants have 30-50% less energy consumption and stainless mills get significant energy and iron credit benefits.

Ore supplies from Philippines and Indonesia are critical in determining the future output limits. Many Chinese producers trying to backwardly integrate into ore.

If new supply outside China comes on successfully, capping prices, NPI production will be limited – if new supply fails, there will be more NPI.

Lots of new rotary kiln electric furnace (RKEF)

capacity coming on stream in 2013!

Source: Industry estimates, Macquarie Research, July 2013

Chinese RKEF Capacity by month

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

2010 2011 2012 2013

Cap

acit

y:

ton

nes N

I a y

ear

Liande ( LISC O)

B eihai C hengde

N ingbo W angxiang

Shangdong X inhai

Tenlong Hejin

Hongda N ieye

C hang jiang N ieye

Suq ian X iangxiang

Jinguang ( SW )

B aogang D esheng

Fuf eng Shiye

D elong N ieye

Shangdong Jinaihui

Shangdong X inhai

Y ichuan N ieye

Haigan Keji

Tsingshan Sij i

Shangai Haihe

Tsingshan

C hangq ing

B eihai C hengde

N ingbo W anxiang

D elong N ieye

Shangdong Jinaihui

Shangdong X inhai

Tsingshan D ingxin

Chinese nickel pig iron production

120

7187

106

159

282

350

394

0

50

100

150

200

250

300

350

400

450

2005 2006 2007 2008 2009 2010 2011 2012 2013f

'000t

Ni

0

50

100

150

200

250

300

350

400

450

0.5-2% Ni blast furnace 4-8% Ni blast furnace

9-15% Ni electric arc furnace 9-15% Ni RKEF

Ore, carbon and electricity main cost drivers for

NPI – 2012 averages

Cost breakdown for 4-6% Ni blast furnace NPI

47%

30%

5%

3%

15%

Ore Coke Coal Electricty Other

Cost breakdown for 10% Ni electric arc furnace NPI

50%

5%

6%

31%

8%

Ore Coke Coal Electricty Other

Source: Industry estimates, Macquarie Research, July 2013

NPI costs for electric furnace producers – big differences in costs

according to location and furnace types – costs fall as raw material

and power costs fall

Source: SMM, Macquarie Research, July 2013

12000

14000

16000

18000

20000

22000

24000

Jan

-10

Mar-

10

May-1

0

Ju

l-10

Sep

-10

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Ju

l-11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Ju

l-12

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

$/lb

ex-V

At

Price: 8-13% NPICosts: 10% Ni - CoastalCosts: 10% Ni - Inner Mongolia

12000

14000

16000

18000

20000

22000

24000

Jan

-10

Mar-

10

May-1

0

Ju

l-10

Sep

-10

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Ju

l-11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Ju

l-12

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

$/lb

ex-V

AT

Price: 8-13% NPICosts: 12% Ni - ConventionalCosts: 12% Ni - RKEF

Low Ni NPI blast furnace producers still profitable

12000

14000

16000

18000

20000

22000

Jan

-10

Mar-

10

May-1

0

Ju

l-10

Sep

-10

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Ju

l-11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Ju

l-12

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

$/lb

ex-V

AT

Price: 4-6% NPI

Costs: 6% Ni in blast furnace

20000

22000

24000

26000

28000

30000

32000

Jan

-10

Mar-

10

May-1

0

Ju

l-10

Sep

-10

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Ju

l-11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Ju

l-12

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

$/lb

ex-V

AT

Price: 1.5-2% NPI

Costs: 1.7% Ni in blast furnace

Source: SMM, Macquarie Research, July 2013

Cost of ore from Indonesia has plunged in 2013

Indonesia ore price plunges in 2013

$/ wet tonne for 1.8% Ni in dry ore

25

30

35

40

45

50

55

60

Oc

t-1

2

No

v-1

2

De

c-1

2

Ja

n-1

3

Fe

b-1

3

Ma

r-1

3

Ap

r-1

3

Ma

y-1

3

$/t

on

ne

CIF FOB

Ore cost in making one tonne of nickel in 10%

Ni pig iron

2500

3000

3500

4000

4500

5000

5500

Oc

t-1

2

No

v-1

2

De

c-1

2

Ja

n-1

3

Fe

b-1

3

Ma

r-1

3

Ap

r-1

3

Ma

y-1

3

$/t

on

ne

CIF FOB

Source: NPI producers, Macquarie Research, July 2013

Key factors in NPI Indonesian ore ban planned for end-2013. No-one thinks this will happen!

Quotas and taxes more likely? 20% export tax (adds 35-40c/lb to costs if

passed on…but it was not!) from May 2012…maybe higher?

Longer term cost pressures – breakeven for NPI could rise from $12,000-

17,000/t currently to $19,000-25,000/lb over next 4-5 years as ore costs,

electricity costs rise and RMB appreciates?

Competition for higher-grade ore (1.8%+Ni) will intensify as more RKEF

comes on and high grade reserves deplete – price of these ores could

rise sharply.

Still unclear how long the resources can last at current rates.

We don’t think ore supply from Indonesia to China will stop in 2014 – it will

become (a lot) more expensive and there will probably be some NPI capacity

built in Indonesia from 2015 onwards.

Nickel supply/demand summary – surplus to 2015?


`000t 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f

Total SS production 33666 35440 38045 40458 43077 45581 47748 49737

% Change 5.7% 5.3% 7.4% 6.3% 6.5% 5.8% 4.8% 4.2%

Ni-containing SS prod. 25080 26831 28707 30523 32632 34510 35986 37564

% Change 9.3% 7.0% 7.0% 6.3% 6.9% 5.8% 4.3% 4.4%

Nickel Consumption 1597 1669 1771 1861 1968 2055 2108 2165

% Change 7.4% 4.5% 6.2% 5.1% 5.7% 4.5% 2.5% 2.7%

Nickel Supply 1630 1772 1843 1938 1986 2042 2065 2090

% Change 12.3% 8.7% 4.0% 5.1% 2.5% 2.8% 1.1% 1.2%

(of which NPI) (282) (351) (396) (378) (360) (360) (360) (360)

World Market Balance 33 103 72 77 18 -14 -43 -75

LME/Producer stocks 186 227 299 375 394 380 338 262

Weeks' world demand 5.9 6.9 8.6 10.3 10.2 9.4 8.2 6.2

LME Cash Price (cents/lb) 1036 795 746 817 953 1134 1300 1400

LME Cash Price ($/tonne) 22831 17527 16455 18001 21001 25000 28660 30864

In conclusion – on the medium term

The laterite “revolution” has arrived – it is built on the shaky ground of low-cost

Indonesian ore/Chinese NPI and VERY high-cost non-Chinese PAL/FeNi

capacity

Failure of major Greenfield projects outside China and massive rises in

construction costs of non-Chinese Greenfield projects likely to deter future

investment

Next two years will be challenging for the nickel industry – unless the

Indonesians ban ore exports in 2014

Growing deficits by mid-decade will lead to need for new capacity…new

capacity needs prices significantly above $22,000/t ($10/lb)

Huge reliance on Indonesian ore to feed RFEF plants in China – unlikely to

stay as “cheap” as it is today?

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand

Outperform – return > 3% in excess of benchmark return

Neutral – return within 3% of benchmark return

Underperform – return > 3% below benchmark return

Benchmark return is determined by long term nominal GDP growth plus 12

month forward market dividend yield

Macquarie – Asia/Europe

Outperform – expected return >+10%

Neutral – expected return from -10% to +10%

Underperform – expected <-10%

Macquarie First South - South Africa




Macquarie - Canada




Macquarie - USA




Volatility index definition* This is calculated from the volatility of historic price

movements.

Very high–highest risk – Stock should be expected

to move up or down 60-100% in a year – investors

should be aware this stock is highly speculative.

High – stock should be expected to move up or down

at least 40-60% in a year – investors should be aware

this stock could be speculative.

Medium – stock should be expected to move up or

down at least 30-40% in a year.

Low–medium – stock should be expected to move up

or down at least 25-30% in a year.

Low – stock should be expected to move up or down

at least 15-25% in a year.

* Applicable to Australian/NZ stocks only

Recommendation – 12 months

Note: Quant recommendations may differ from

Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments

made:

Added back: goodwill amortisation, provision for catastrophe

reserves, IFRS derivatives & hedging, IFRS impairments &

IFRS interest expense

Excluded: non recurring items, asset revals, property revals,

appraisal value uplift, preference dividends & minority

interests

EPS = adjusted net profit /efpowa*

ROA = adjusted ebit / average total assets

ROA Banks/Insurance = adjusted net profit /average total

assets

ROE = adjusted net profit / average shareholders funds

Gross cashflow = adjusted net profit + depreciation

*equivalent fully paid ordinary weighted average number of

shares

All Reported numbers for Australian/NZ listed stocks are

modelled under IFRS (International Financial Reporting

Standards).

Recommendation proportions – For quarter ending 31 March 2013

AU/NZ Asia RSA USA CA EUR

Outperform 45.12% 53.24% 50.00% 40.70% 62.98% 43.30% (for US coverage by MCUSA, 10.55% of stocks covered are investment banking clients)

Neutral 41.52% 28.01% 41.43% 55.01% 32.60% 34.10% (for US coverage by MCUSA, 9.05% of stocks covered are investment banking clients)

Underperform 13.36% 18.74% 8.57% 4.29% 4.42% 22.60% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)

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The nickel market outlook - can the laterite revolution continue?

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Transcript of The nickel market outlook - can the laterite revolution continue?