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Global Nickel Market Trends
Voisey’s Bay Mine Site, Newfoundland and Labrador, Canada
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“This presentation may include statements that present Vale's expectationsabout future events or results. All statements, when based upon expectationsabout the future and not on historical facts, involve various risks anduncertainties. Vale cannot guarantee that such statements will prove correct.These risks and uncertainties include factors related to the following: (a) thecountries where we operate, especially Brazil and Canada; (b) the globaleconomy; (c) the capital markets; (d) the mining and metals prices and theirdependence on global industrial production, which is cyclical by nature; and(e) global competition in the markets in which Vale operates. To obtain furtherinformation on factors that may lead to results different from those forecast byVale, please consult the reports Vale files with the U.S. Securities andExchange Commission (SEC), the Brazilian Comissão de Valores Mobiliários(CVM), the French Autorité des Marchés Financiers (AMF) and in particular thefactors discussed under “Forward-Looking Statements” and “Risk Factors” inVale’s annual report on Form 20-F.”
“Cautionary Note to U.S. Investors - The SEC permits mining companies, intheir filings with the SEC, to disclose only those mineral deposits that acompany can economically and legally extract or produce. We present certaininformation in this presentation, including ‘measured resources,’ ‘indicatedresources,’ ‘inferred resources,’ ‘geologic resources’, which would not bepermitted in an SEC filing. These materials are not proven or probablereserves, as defined by the SEC, and we cannot assure you that thesematerials will be converted into proven or probable reserves, as defined by theSEC. U.S. Investors should consider closely the disclosure in our AnnualReport on Form 20-K, which may be obtained from us, from our website or athttp://http://us.sec.gov/edgar.shtml.”
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1. Overview of Nickel
2. Current Market
3. Future Market
Nickel
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Nickel has many applications that take advantage of its uniquecharacteristics
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4%10%
7%
5%
3%
71%
Demand for nickel is dominated by Stainless SteelAlloy steels
Non-ferrousalloys
Plating
Foundry
Batteries
Stainlesssteel
Class I48%Class II
52%
Source: Wood Mackenzie, SMM, Company Reports, Vale Analysis
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Class I48%Class II
52%
Global nickel production is split between two purityclasses: Class I and Class II
FeNi(>15% nickel,balance iron)
Nickel Pig Iron(2-12% nickel,balance iron)
Powders
Briquette
Rounds
Pellets
Nickel OxideSinters
(>70% nickel)
Source: Wood Mackenzie, SMM, Company Reports, Vale Analysis
Commodity Products<predominately iron bearing>
<contain impurities><relatively inexpensive to grow>
Premium Products<99.98% nickel or higher><contain few impurities><very expensive to grow>
Cathodes
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1. Overview of Nickel
2. Current Market
3. Future Market
Nickel
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LME traded commodities respond to macro stimuli together but industryfundamentals influence the relative price movement – nickel has started tooutperform its peers
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
1-Oct-16 1-Oct-181-Jan-17 1-Apr-171-Jul-16 1-Oct-17 1-Jan-181-Apr-16 1-Apr-18 1-Jul-181-Jan-16 1-Jul-17
Base Metal Price Index (Jan 2016 = 100)
Ni
PbCu
Zn
Sn
Al
Strong recovery indemand from stainlesssteel in China; mining
audit in Philippines
Russian sanctionsand global trade
war
LME week & USelection
Philippine miningaudit results
released
Indonesia exportvolumes start to be
announced
Unexpectedly strongstainless steel
production and macrossupporting demand
growth
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This is due to industry fundamentals – market has shiftedinto deficits
1,200
1,600
2,000
2,400
2,800
3,200
3,600
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
SupplyDemand
Nickel Market Supply and Demand (kt Ni)
price underperformance
priceoverperformance
Source: INSG, CRU, Wood Mackenzie, Vale Analysis
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And we have seen almost 160kt of exchangeinventories withdrawn so far
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105
20
28
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Other FormsJan 1, 2018
367
Sep 7, 2018Briquette
237
Full PlateCathode
4
SHFE (FullPlate Cathode)
411
253
-158 kt(-38%)
BQ moving out ofthe exchanges(consumed orspeculated on)
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After an explosive start in H1, we expectstainless production in China to slow in H2
0
500
1,000
1,500
2,000
2,500
May2018
Jun2018
Jul2018
Sep2018
Oct2018
Dec2018
Jun2017
Feb2018
Mar2017
Feb2017
Feb2019
Nov2018
Apr2017
Sep2017
May2017
Jul2017
Aug2018
Aug2017
Oct2017
Jan2019
Nov2017
Dec2017
Jan2018
Mar2018
Apr2018
+20%
+2%-2%
-6%-1%
-1%
China Stainless Steel Production (‘000 t of stainless, all grades)
Source: Umetal, CRU, Wood Mackenzie, Vale Analysis
300-Series 200-Series 400-Seriesforecast
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Part of the reason is increased Indonesian stainless importsinto China, which competes with domestic production
0
20
40
60
80
100
120
140
160
180
200
220
240
China Stainless Steel Imports (‘000 kt)
Dec
-17
Feb-
18
Jan-
16
Feb-
16
May
-16
Mar
-16
Jun-
16
RoW
Apr-1
6
Jul-1
6
Aug-
16
Jul-1
7
Oct
-16
Sep-
16
Nov
-16
Dec
-16
Jan-
17
Feb-
17
Mar
-17
May
-17
Apr-1
7
Jun-
17
Aug-
17
Sep-
17
Oct
-17
Indonesia
Nov
-17
Jan-
18
Mar
-18
Chinese government is nowconsidering anti-dumping action
Indonesia is expected toproduce 2.3Mt ofstainless this year
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Meanwhile, the rest of the world stainlessproduction is expected to remain relatively flat
0
500
1,000
1,500
2,000
Apr2018
May2018
Feb2019
Jun2018
Jul2018
Aug2018
Mar2017
Sep2018
Nov2018
Jan2019
Oct2018
Jul2017
Aug2017
May2017
Feb2017
Apr2017
Jun2017
Mar2018
Sep2017
Dec2018
Oct2017
Nov2017
Dec2017
Jan2018
Feb2018
-1%+1%
+1%+4%
-1%-3%
World excl. China excl. Indonesia Stainless Steel Production (‘000 t of stainless, all grades)
Source: Umetal, CRU, Wood Mackenzie, Vale Analysis
USA RoAEurope Japan RoWforecast
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The positive price recovery to date is stimulatingproducers to add more nickel into the market – class 2
31 2732
41 37 33
170180190
130
0
110100
120
90
160
140150
Jan-
17
Feb-
17
167
Mar
-17
Apr-
17
May
-17
Jun-
17
Jul-1
7162
Chinese Refined
165 165 163 159
Chinese NPI
175 173
Mar
-18
178
Feb-
18
181 180
Jan-
18
164158
168176
Aug-
17
Dec
-17
Jun-
18
172
Nov
-17
RoW
Oct
-17
Russia
Sep-
17
164
May
-18
181
Indonesia
Apr-
18
+6.8%
+5.5%
+5.0%
Source: Wood Mackenzie, SMM, Company Reports, Vale Analysis
Monthly Nickel Production (kt)
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1. Overview of Nickel
2. Current Market
3. Future Market
Nickel
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What we see…There is a growing consensus that electric vehicleproduction will grow exponentially
Source: Vale Analysis, Company Publications
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What we see…A lot of money is being committed to electric vehicles
Source: media reports
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What we see…Government policy as the main driver supportingshift to electric vehicles
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0
50,000
100,000
150,000
200,000
FebJan Jul AugMayMar Apr Jun DecSep Oct Nov
+74%20172016 2018
0
50,000
100,000
150,000
200,000
Jan JunMayFeb AugMar JulApr Sep Oct Nov Dec
+124%
Worldwide EV sales(# cars)
China EV sales(# cars)
o Global EV salesexpected to break 2Munits in 2018
o Increasingly likely toexceed expectationsfor 2020
What we see…EV sales are breaking records
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5th Avenue, NYC, Easter 1900The transition can happen very fast…
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5th Avenue, NYC, Easter 1913The transition can happen very fast…
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What we expect…Electric vehicle costs are coming down
Source: Bank of America Meryl Lynch “Global Electric Vehicle Primer: Fully Charged by 2050” October 4, 2017
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What we expect…Nickel is one of the key ingredients in the Electric Vehicle andwe expect it to remain in the battery for the foreseeable future
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Source: Vale Analysis
What does this mean for nickel?Massive growth in demand that willreshape the nickel market
25Cathode Material
Cell(shell is nickel plated)
PackSource: Vale Analysis
1 part 1 part1 part
LithiumCarbonate
CobaltSulphate
NickelSulphate
Aluminum orManganese
Sulphate
OR
8 parts
What does this mean for nickel…Batteries require high purity nickel sulphate
An example of aNickel-Rich Battery
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Source: LME, Barclays, BMO, Credit Suisse, Deutsche Bank, Goldman Sachs, Macquarie, Morgan Stanley, RBC, UBS, Wood Mackenzie
What does this mean for nickel?Increasing competition for suitable sources for nickelsulphate production, particularly Class I nickel
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Source: LME, Barclays, BMO, Credit Suisse, Deutsche Bank, Goldman Sachs, Macquarie, Morgan Stanley, RBC, UBS, Wood Mackenzie
What does this mean for nickel?The nickel industry is lagging behind in investmentsdue to the lack of incentive price
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o It is still a stainless steel market and it willstay that way for a number of years
o We are at a precipice of an Electric Vehiclerevolution and this has the potential to usherin a new age for nickel
o Nickel will have a role in the battery for theforeseeable future
o Supplying the right nickel units at the paceneeded will be a challenge for the industry
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