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2013/10/9
1
NPI Evolution & Influence on Nickel Price
A Presentation for INSG
Oct, 2013
© SMM. All rights reserved.
Agenda
NPI Evolution Drives Down Nickel Price
Latest Trend of NPI Investment
About SMM
1
2
3
2
2013/10/9
2
© SMM. All rights reserved.
Nickel price has fallen by more than 50% since 2011
3
LME Nickel Price Trend
Down by >50%
Data source: LME, SMM
Unit: $/ton
− LME Nickel price has fallen from $29,065/ton in Feb, 2011 to only $13,310 in Jul, 2013, dropping by more than 50%.
10,000
15,000
20,000
25,000
30,000
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
© SMM. All rights reserved.
Slowdown of demand growth, oversupply of Ni and lower cost of NPI push the price down
Slowdown of Demand Growth
• China stainless steel, as the major downstream of Nickel, has driven the global Ni consumption slow down
Lower Cost of NPI
• RKEF technology in China is booming
• Smelters with RKEF are mainly distributed in costal provinces
• RKEF has cost advantage compared with BF and EF
Oversupply of Nickel(Including NPI)
• China NPI has contributed the global Ni supply increase and replaced other Ni materials in SST production
• Global Nickel market has show supply surplus since 2011
1 2 3
4
Growth slowdown of demand, oversupply of Nickel and lower cost of NPI push the price down
2013/10/9
3
© SMM. All rights reserved.
China stainless steel has driven the global Ni consumption slow down
China World
Data source: SMM, Brook Hunt
− Stainless steel is the largest Nickel downstream sector in China and the world as well.
− Compared to 67% of Nickel consumption in the world, China stainless steel companies consumed more than 80% of the total.
5
Nickel Consumption Structure
1
− China stainless steel production accounted for more than 45% of total world in 2012 and has played the role as engine in last few years.
− With China stainless steel output growth slowing down, global stainless steel production growth rate has decreased from about 25% in 2010 to only 5% in 2012.
Global Stainless Steel Output (2007-2012)
Data source: ISSF, SMM
-10%
0%
10%
20%
30%
0
10,000
20,000
30,000
40,000
2007 2008 2009 2010 2011 2012
Unit: kt
World ex China ChinaWorld Growth Rate China Growth Rate
© SMM. All rights reserved.
Slowdown of demand growth, oversupply of Ni and lower cost of NPI push the price down
Slowdown of Demand Growth
• China stainless steel, as the major downstream of Nickel, has driven the global output slow down
Lower Cost of NPI
• RKEF technology in China is booming
• Smelters with RKEF are mainly distributed in costal provinces
• RKEF has cost advantage compared with BF and EF
Oversupply of Nickel(Including NPI)
• China NPI has contributed the global Ni supply increase and largely replaced other Ni materials in SST production
• Global Nickel market has shown supply surplus since 2011
1 2 3
6
Growth slowdown of demand, oversupply of Nickel and lower cost of NPI push the price down
2013/10/9
4
© SMM. All rights reserved.
China NPI has contributed the global Ni supply increase and largely replaced other Ni materials in SST production
− In recent years, due to the cost and accessibility advantage in China, NPI has replaced other nickel sources such as refined nickel, Cuban nickel oxide, imported ferronickel, etc., and is estimated to share more than 50% of nickel supply in SST production in 2013
7
2
Global Nickel Output
Source of Nickel Used in Chinese Stainless Steel (SST) Production
− Due to the fast increase of NPI production, China has been the largest contributor to global primary nickel output growth since 2009, with proportion from only about 5% in 2008 to more than 20% in 2013.
Unit: kt
0%
5%
10%
15%
20%
25%
0
500
1,000
1,500
2,000
2,500
2007 2008 2009 2010 2011 2012 2013E
NPI output(Ni Content)world ex NPINPI Proportion
0%
20%
40%
60%
80%
100%
2010 2011 2012 2013E
NPI Refined NiScrap Import FerroNiCuba Ni Oxide
© SMM. All rights reserved.
Global Ni Balance & LME Ni Price
8
2
− Due to the decelerating demand growth and fast supply increase driven by China NPI production, global nickel market has shown supply surplus since 2011, resulting in the nickel price down.
Global Nickel market has shown supply surplus since 2011
Data source: INSG, SMM
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
-40
-20
0
20
40
60
80
100
2007 2008 2009 2010 2011 2012 2013E
Balance Nickle average price
Unit:1,000Mt Unit:USD/mt
2013/10/9
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© SMM. All rights reserved.
Slowdown of demand growth, oversupply of Ni and lower cost of NPI push the price down
Slowdown of Demand Growth
• China stainless steel, as the major downstream of Nickel, has driven the global output slow down
Lower Cost of NPI
• RKEF technology in China is booming
• Smelters with RKEF are mainly distributed in costal provinces
• RKEF has cost advantage compared with BF and EF
Oversupply of Nickel(Including NPI)
• China NPI has contributed the global Ni supply increase and replaced other Ni materials in SST production
• Global Nickel market has show supply surplus since 2011
1 2 3
9
Growth slowdown of demand, oversupply of Nickel and lower cost of NPI push the price down
© SMM. All rights reserved.
RKEF process, as a new NPI production technology, boomed in recent years
3
Supply Proportion of Different Types of NPI, 2009-2013E
10
− As SMM estimated, RKEF process produced more than 20% of NPI in China in 2012 and will increase to about 50% in 2013.
Data source: SMM
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013E
BF(1-2%) BF(4-8%) EAF(10-15%) RKEF(10-15%)
2013/10/9
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© SMM. All rights reserved.
Smelters with RKEF are mainly distributed in costal provinces
3
11
RKEF Plant Distribution and Typical Process
Electric Arc Furnace
Rotary Kiln
Dryer Kiln
NPI
Wet Ore
Laterite Ore Mining
− Smelters with RKEF are mainly distributed in costal provinces of East and South China with low logistics cost for imported laterite ore.
Provinces with RKEF Plants
Data source: SMM
© SMM. All rights reserved.
RKEF has cost advantage compared with BF/EF
3
Cost Comparison of Technologies
12
− Benefitting from the saving of power (3,500-4,000KWH/ton for RKEF VS 6,000-7,000KWH/ton for EF), logistics (close to the port), etc, RKEF process has cost advantage, which is usually over RMB2,000/ton comparing to BF and EF process.
Data source: SMM
Unit: $/ton
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
2012/1/4 2012/4/4 2012/7/4 2012/10/4 2013/1/4 2013/4/4 2013/7/4
Fujian (RKEF) Inner Mongolia (EF)
Jiangsu and Shandong (EF) Shandong (4-6% BF)
LME nickle price
2013/10/9
7
© SMM. All rights reserved.
Nickel Price is expected to be between 13,600-15,000 $/ton in Q4, 2013
LME Nickel Price Expectation
Data source: LME, SMM
Unit: $/ton
13
2013 Q4 price range: 13,600-15,000 $/ton
10,000
15,000
20,000
25,000
30,000
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13
13,600
© SMM. All rights reserved.
Agenda
NPI Evolution Drives Down Nickel Price
Latest Trend of NPI Investment
About SMM
1
2
3
14
2013/10/9
8
© SMM. All rights reserved.
PT Inco
Antam-1
Antam-2
Antam-3
MCOERN-2
MCOERN-1
Weda Bay Nickel
TITAN
ERAMET
Jiangsu Mingzhu International
Beijing Shenwu Environment & Energy Technology Co., Ltd.
Fujian Pan-Chinese Mining
IndoferroHOROC
Hanwang Industrial Group
Tsingshan Group
New Metallurgy & Dafeng
Hong hehenghao
SOLWAY
BOSOWA
Bukaka Teknik Utama
Bakti Bumi Sulawesi
INTEGRA
Operating Plant Planned Plant ex China
Rush to Indonesia
15
Chinese Planned PlantData source: SMM
© SMM. All rights reserved.
Gaining control of Laterite ore is the prime focus for NPI producers
Typical RKEF Cost Structure (2012)
Data source: SMM
− As Laterite ore is the most important raw material for NPI and accounts for more than 40% of total cost, gaining control of Laterite resources to secure stable supply and low ore cost, has become the prime focus for NPI producers.
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Laterite Ore
Bituminous
Electricity
Others
0%
20%
40%
60%
80%
100%
2012/1/4 2012/3/4 2012/5/4 2012/7/4 2012/9/4 2012/11/4
2013/10/9
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© SMM. All rights reserved.
Indonesia’s banning export policy makes NPI producers rush to smelting in Indonesia
17
China’s Monthly Laterite Imports
Data source: China Customs, SMM
− Indonesia and Philippines are the two dominate sources of laterite ore to China, sharing more than 99% of total ore imported.
− As Indonesia government is restricting laterite ore export, China NPI producers are rushing to smelting in Indonesia to secure the laterite ore supply.
Indonesia started collecting export tax and issued quotas.
50% division
Unit: kt
0%
20%
40%
60%
80%
100%
0
2,000
4,000
6,000
8,000
Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13
Philippine Indonesia Indonesia Share
© SMM. All rights reserved.
Strength of smelting in Indonesia
18
− Indonesia is one of the largest laterite ore resource countries in the world
1. Rich Resources
− Only a few producers in Indonesia which is much less competition compared with hyper-competitive market in China.
4. Less Competition
− No sea freight charges and cheaper coal lead to low NPI production cost.
2. Low Cost
− The Indonesian government plans to ban the export of unprocessed minerals from 2014.
3. Legal Avoidance Policy
Rush to Smelting in Indonesia
Smelting in Indonesia
2013/10/9
10
© SMM. All rights reserved.
Agenda
NPI Evolution Drives Down Nickel Price
Latest Trend of NPI Investment
About SMM
1
2
3
19
© SMM. All rights reserved.
About SMM
Daily Online Information
Analysis Reports
IndustryStatistics
Research & Consulting
BusinessOpportunity
Company Evolution
Service Portfolio
Market Intelligence
20
19991999
Company established
20042004
China No. 1 website in non ferrous metal
industry
20062006
China Zinc & Lead price benchmark
20102010
China Copper RMB price benchmark
2011201120092009
China Strategic Metals price benchmark
Strategic Metal price starts to
influence global market
Start to compile China Steel
PMI
Start to compile non-ferrous metal PMI
20122012
Start cooperation with third party data
platform (Bloomberg, Thompson Reuters,
etc.)
2013/10/9
11
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Service mix
SMM Consulting
Co
nsu
ltin
g S
ervi
ces Expansion
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Sourcing
Distribution
Restructuring & Repositioning
Industry Practices
Base Metals
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21
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Analytic process methods are based on our experience in market research andmanagement consulting, using an iterative process to carry out the analytical work. Eachcomponent has been designed to sequentially develop information and understandings inorder to inform and enable the next step, as illustrated:
Program initiation
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Value Chain Framework Review
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Coordination/analysis
Review with client
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Verification
Final presentation/work session
Potential next steps
Our methodology is …
22
Foreign-related Investigation Lincense
2013/10/9
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Why SMM?
SMM Consulting Typical Consulting Firms
Highly experienced people at all levels
Experienced partners, inexperienced consultants
Leveraging our experience to resolve clients’ issues
Leveraging consulting to sell other services
Highly professional in nonferrous metals industry
Targeting many industries, nonprofessional in nonferrous metals industry
23
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We have a preeminent position in syndicated research across many nonferrous metals markets-Examples include :
• Online intelligence & database
- News
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• Weekly report
- China Nickel Briefing
- China Lead Weekly
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• Monthly report- China Nickel Monthly- China Aluminum Monthly- China Copper Monthly
• Annual report
- China Nickel Industry Chain Report
24
2013/10/9
13
SMM is a leading domestic consulting and research firm dedicated
to providing the kind of insight and knowledge that helps companies
find a clear path to success. The firm has served the management
consulting and market research needs of organizations in the non-
ferrous metal industries for over 10 years. For more information,
visit www.metal.com or en.smm.cn .
If you require additional information about the contents of this document or the services that SMM provides, please contact:
Ryan Dong+86-21-3133 [email protected] west, No. 2000,North Zhongshan RoadShanghai, PC 200063, China