Nornickel ramps up production to meet battery demand

Russian metals producer Nornickel plans to ramp up nickel production to 240,000t by 2025 to meet growing demand in the battery sector, the company said on 19 November.

The expansion is pending investment decisions on both the Talnakh and South Cluster projects in Russia.

Nornickel expects to meet its nickel production guidance of 210,000-215,000t in 2018.

The Russian producer believes nickel demand will grow as the battery sector develops rapidly over the next few years.

The battery sector's nickel demand is forecast to nearly triple to 430,000t by 2025, up from 140,000t in 2018.

"We need more nickel as the battery sector develops. Traditional nickel refining is really stagnating. Building a mine takes years [and] if it's an underground mine, it takes 10-15 years to bring it on stream," Nornickel global marketing director Anton Berlin said.

The volume of nickel consumption in the battery sector will be comparable to the stainless steel industry and both markets will compete for nickel as raw material.

Nickel substitution is increasing in the stainless steel industry. The Chinese industry has relied heavily on nickel pig iron (NPI) for production in recent years, substituting nickel as a key raw material. NPI output in China and Indonesia rose by 28pc to 721,000t in 2018. And production in 2019 will surpass 2018 by 14pc to 819,000t, Nornickel said.

But the rising global consumption of stainless steel products is offsetting the impact on total stainless demand for nickel.

"Stainless steel production is up by 8pc this year and China has been developing significant domestic consumption. People in China are buying more utensils, air conditioning [and other stainless products]," said Berlin.

Nickel inventories on London-based metals exchange the LME and the Shanghai Future Exchange have been drawn down between end-2017 and November 2018. The combined inventories held across the two exchanges totalled 410,000t at the end of 2017 and fell to 233,000t by 1 November 2018.

Nornickel claimed that the majority — 123,000t — of the 177,000t that was drawn down was consumed by end-users, while the remaining 54,000t was relocated.

The firm acknowledged the existence of off-warrant material and that these "invisible" stocks could create problems in forecasting the actual nickel supply and demand outlook. But the company expects that the existing overall global stockpile will be depleted in three years.

The group forecast that the nickel market will be in a 60,000t deficit in 2019, compared with a 134,000t deficit in 2018.

Mills in Europe and the US are increasingly switching to scrap as their main raw material input.

"Stainless steel scrap is always the material of choice. One customer in the US has become a re-melter and consumes only stainless scrap," said Berlin.

A decade ago, 40-50pc of European mills' raw material input was stainless steel scrap but that proportion has increased and scrap now accounts for more than 60pc of input, Nornickel said.

But Europe remains Nornickel's biggest export market despite this, accounting for 45pc of its annual nickel output, while China receives a quarter of the company's production and the US 13pc. The remaining 17pc is sold to the rest of the world.

Nornickel's sales strategy is to sell most of its production through annual supply contracts. The negotiation for 2019 is expected to conclude by end of this year.

The group also produces copper, cobalt, palladium, platinum and rhodium.

Trade war is the main driver for LME price disconnection

Despite the growth in nickel demand, the LME nickel price has been falling since June. The official three-month price was at $11,260/t on 20 November, the lowest since 18 December 2017.

"The price disconnection with nickel has been affected by the sentiment of financial players," Berlin said. "Headlines and news have exaggerated impacts on prices. With the trade war, people are downgrading nickel. But the [Chinese export] products that contain nickel are only 2,000t out of a 2mn t market. People are missing the bigger picture."

But Nornickel's business with China is "as usual", despite the ongoing trade tension between the US and China.

Russian aluminium producer UC Rusal is a major shareholder of Nornickel, with a 27.8pc stake hold in the company, but the US sanctions against Rusal have had no impact on Nornickel's business.

Nornickel estimates that nickel prices will need to rise to incentivise increased mining output, as the current price is close to the cost-floor of production. But the company declined to give a price forecast or specify its own production costs.