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Nickel usage to grow 4%/year to 2027, deficit to narrow: Roskill

London — Primary nickel consumption is set to rise by just under 4%/year between 2017and 2027, driven by increased consumption by stainless steel producers and bythe battery sector, but a ramp-up in Indonesian capacity means refined supplygrowth will outstrip demand, Roskill Information Services said on February 7.

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"The scale of investment in Indonesia will lead to a more rapid increase inrefined supply than demand in the years ahead, leading to increasingly smalldeficits and then into a succession or modest surpluses. Only towards the endof our forecast period does a lack of visible projects lead to a decline insupply growth and to new market deficits," the UK-based consultancy said.

"The upshot is that the LME nickel price is likely to rise further duringperiods of market deficits, although price growth should be held back by thehigh level of visible stocks," Roskill said, adding that market surpluses inthe middle of the forecast period "will drag prices down before reneweddeficits at the end of our forecast horizon push prices higher again."

The nickel market was set to register its second-successive deficit in 2017,but LME nickel prices remain low by historical standards, while a successionof market surpluses up to 2015 have left reported nickel stocks at near-recordhighs, equivalent to 9.9 weeks of consumption, the company noted.

The LME nickel cash settlement price averaged $10,411/mt last year, up from$9,609/mt in 2016 but down 18% from its five-year average (2013-2017) of$12,741/mt and 36% below the 10-year average of $16,157/mt.

BATTERY DEMAND

Roskill estimates that the stainless steel sector accounted for nearly 70% ofall primary nickel consumption in 2017.

"Demand for primary nickel in this market is anticipated to increase by 2.5%per year over the course of our forecast period, thanks to rising output inChina and Indonesia," the company said.

But despite this growth, the stainless steel sector's share of nickelconsumption is expected to decline over the coming decade because of therising importance of the battery sector, notably in automotive applications.

"It is becoming increasingly clear that we are currently at a turning point:Roskill expects sales of purely fossil-fuelled cars to start declining, evenas sales of all types of vehicles continue to rise," the company said, addingthat by 2027 it forecasts that electric vehicle sales will account for nearly30% of the total.

Currently, the best technology to store the energy required by electric motorsis the lithium-ion battery, and most (although not all) types of suchbatteries contain nickel.

"Therefore, the increasing electrification of the automotive industry willrepresent a new demand stream for nickel," the company said.

"In addition, increasing the energy density of lithium-ion batteries (andtherefore increasing vehicle range) means increasing the concentration ofnickel within the battery cathode, a trend that we also expect to occur duringour forecast period. This will give demand for nickel in the battery industrya double-boost," it added.

By 2027, Roskill expects primary nickel demand in batteries to be above500,000 mt/year -- still only a third of the consumption by the stainlesssteel sector, but rising at faster rate, even in terms of tonnes.

Primary nickel demand in the battery sector is forecast to rise by over20%/year between 2017 and 2027, it added.

SUPPLY GROWTH LAGS

On the supply side, growth has lagged demand growth since 2014 as weak nickelprices have dissuaded investment in new capacity and led to some capacityclosures, the company said, noting that as a result, the market has moved froma structural surplus into deficit, with 2017 being the second year insuccession that demand exceeded supply.

There have been some exceptions, however, with Chinese producers investingheavily in nickel pig iron plants in Indonesia following the Indonesiangovernment's ban on the export of unprocessed ores in 2014, Roskill said.

"In 2014 Indonesian primary nickel production was around 24,000 mt, but weexpect this to have reached over 170,000 mt in 2017, thanks to thecommissioning of new plants. By 2027, we expect Indonesian refined productionto have risen to over 550,000 mt," the company said.

In addition, a move in 2017 to allow the export of some low-grade ores fromIndonesia has boosted ore supplies to domestic Chinese NPI plants.

"This should also allow local NPI producers to increase output and by 2027 weexpect primary nickel production to be some 140,000 mt higher than in 2017,"Roskill said, adding that jointly, Indonesia and China will account for around60% of all production growth in the next decade.

"With nickel prices still low by historical standards and visible stockselevated, there has been little incentive to invest in new refining capacity.However, the expected rise in nickel consumption in batteries has increasedinterest in producing battery-grade material, such as nickel sulphate,"Roskill said.

Recently, BHP Billiton decided to add a sulfate plant at its existing Kwinanarefinery in Australia to convert the plant's production of nickel powder intonickel sulfate using sulfuric acid from its Kalgoorlie smelter.

"A second phase is a possibility, and Roskill expects similar announcements byother producers in the future," the company said.

--Andy Blamey, andy.blamey@spglobal.com