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London — Russian nickel, copper and PGM producer Nornickel posted Wednesday neutral outlook for nickel saying it expects overall balanced market this year although the recent coronavirus outbreak poses a downside risk to its assumptions.

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While there are signs that epidemic might be on a decline, major uncertainty remains. The Chinese government restrictions on mobility, extended work holidays and mandatory closures have disrupted supply and impacted end consumption. The extent of demand disruption makes it unlikely that the first quarter losses can be fully recouped in Q2 and Q3, as the supply is also yet to recover as many workers have yet to return to mines and smelters.

The ramp-up of new nickel pig iron (NPI) capacity in Indonesia could be also delayed as Chinese workers involved in the construction of NPI smelters and high pressure acid leaching facilities there have been put in quarantine, Nornickel said.

Otherwise, the company expects nickel market to be balanced in 2020 as Indonesia continues ramping up and commissioning of its NPI projects, which are expected to bring additional 150,000 mt of nickel units. Although the Indonesian export ban will reduce the availability of ore feed to Chinese NPI smelters, ore inventories of 14 million mt accumulated in the country and a potential increase of ore supply from the Philippines should mitigate this negative effect in the short term.

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Referring to other factors, the company believes the Indonesian ban on the export of nickel ore, effective from January 1, will not have a substantial effect on the market in the short-term, but could have a more material impact on the global supply in the medium-term

Production of high-grade nickel is expected to increase in 2020, with nickel chemicals potentially growing by 16,000 mt mainly due to the commissioning of NiSO4 [nickel sulfate] production by BHP and Jinchuan, and refined nickel growing by 41,000 mt, reflecting the recent upward revisions of production guidance by Canadian resource company Sherritt and French mining and metallurgy company Eramet.

Primary nickel consumption is expected to increase by 85,000 mt or 3% to 2.54 million mt in 2020. Primary nickel demand in Chinese stainless is expected to moderate to a 2% uptick as the county's GDP growth is forecast to slow down. Stainless demand in the rest of Asia is anticipated to increase by 10% (as Thai steelmaking company Delong should start to ramp up its capacities in Indonesia), while European consumption of nickel in stainless could decrease by 4% as local producers continue facing strong competition from Asia with the local end-user demand staying weak.

The US nickel consumption is expected to slightly recover gaining 1% year on year on the back of stable stainless output supported by import tariffs.

Batteries for electric vehicles are expected to continue to be the key demand growth driver in the medium- and long-term supported by the roll out of regulations in most major car markets stimulating transition to carbon free cars.

The growth rate of global nickel demand from battery material producers could moderate to 17% year on year (down from 26% in 2019) reaching a combined volume of 210,000 mt in China, Japan and South Korea.

The EV penetration in 2019 in China was disappointing with new energy vehicles (NEVs), including battery cars and all kinds of hybrids sales declining 4% to 1.2 million units, 40% short of initially expected 2 million vehicles and the Chinese government goal to reach 5 million NEV sales by 2025 is now looking a bit stretched, noted Nornickel.

Nevertheless, the shift to nickel-intensive NCM 811 [cathode with nickel, cobalt and manganese in a ratio of 8:1:1] chemistry in battery cathodes is well under way, with this technology expected to become mainstream in the next five years, which should support the steady growth of demand for nickel. Europe should also boost its EV production as major original equipment manufacturers will have to meet new emission legislation requirements and CO2 targets.