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Nickel: China's NPI Production Under Forecasted Oversupply In 2012
= 16% of world nickel production was from NPI last year but likely to fall in 2012 due to price slump =
Nickel market in 2012 is forecasted under oversupply situation. The biggest concern of the market is how the NPI producers will behave under such a bleak outlook of the 2012 market, as the output of nickel in NPI in 2011 was as much as 16% of the total world output of nickel.

According to a Chinese research company, Antaike, about a half of the NPI producers are in curtailment or off-line, waiting for a price recovery to more than US$9/lb and/or for lower prices of nickel ore. Production capacity of NPI in China is said to have already reached to 260,000 – 280,000 tons on annual basis during 2011 and there are several projects to add new NPI capacities. In fact, however, some of the projects are still in a stage of securing ore supplies from abroad by developing new nickel mines, so it will take 2 or 3 more years before such projects are counted as new capacities. If there is no worry about profitability of NPI production, it is considered easy for China to increase the capacity to more than 300,000 tons per year.

The new nickel projects in other areas, which were due for start-up already in 2010 and 2011, all adopting the HPAL process to produce nickel metal, are to come on stream one after another in 2012. First comes Vale's project in New Caledonia (VNC), which has been delayed for some years, is planning to produce 20,000 tons of nickel metal in 2012. The project was to start full-scale production in October 2010, but the unit reportedly produced only 3,000 – 6,000 tons in 2011. Second comes Ambatovy project in Madagascar operated mainly by Sherritt of Canada with a capacity of 60,000 tons per year, which was originally to start up in the second half of 2011, is to start full-scale production in 2012. And next comes (iii) Ramu project in Papua New Guinea, majority owned by a Chinese consortium, where construction is steadily stepping ahead for completion and commissioning, with a plan of full-scale production start-up in summer of 2013, or latest before the end of 2013.

As to ferronickel, the new smelters which started production in 2011 in Brazil, (i) Onca-Puma: 53,000 tons per year and (ii) Barro Alto: 36,000 tons per year, both already commenced deliveries in the second half of the year.

Aggregate of the new production from all these units is calculated 300,000 tons on annual basis, as an increase in output, while the world nickel production in 2011 was 1.6 million tons. This means market will become most probably oversupply in 2012. Eramet mentioned in a conference held in Korea recently that 48,900 tons of nickel would be surplus during the next year, while the surplus during 2011 was just 3,300 tons.

During the first half of 2011, production of NPI in China sharply increased due to the short supply of nickel as well as the comfortably high level of LME price at US$10 – 12/lb, and became another important source of nickel for Chinese stainless steel mills. However, it is disputable whether the NPI production in China can be relied on as a stable source of nickel under the current situation that NPI production is not very much profitable due to the high production costs on the imported ores and on the increasing power price.

A well-informed market analyst forecasts LME nickel price in 2012 will be between the high at US$11.30/lb and the low at US$7.25/lb, so China's NPI production of which costs are said to be still comparatively high at US$8 – 9/lb may well be compelled to curtail more and/or temporarily cease sooner or later. On the other hand, dark clouds are being cast also over the stainless steel production that consumes more than 60% of nickel consumption of the world, due to the forecasted worldwide recession as triggered by the crisis in Europe.

There are still possibilities that start-up of some of the projects adopting the HPAL process may be further delayed from technical problems, but, on top of the increasing trend in supply, the NPI production in China of still high cost is another, and probably more influential factor to consider for the nickel market in 2012.
last modified : Fri 13 Jan, 2012 [14:00]
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