Monday, 30 September 2019 10:34 PM ETBy Anthony...

Monday, 30 September 2019 10:34 PM ETBy Anthony Barich

Independence Group NL CEO Peter Bradford says Australia could play an important role in helping address the rising nickel supply deficit after decades of "massive under-investment" in exploration which could push prices high enough to encourage substitution in both steel and battery making.

radford told a Sept. 26 West Australian Mining Club function in Perth that the project pipeline to fill the rising supply gap is empty, and said a "measured response" from industry is required.

Bradford said there are no shovel-ready projects on the planet except for Glencore PLC's Kabanga project in Tanzania which is about 1,000 kilometers inland, and KGHM Polska Miedź SA's Victoria project in Ontario, where the ore body starts at 1 kilometer depth.

Such projects are "not going to be developed in a hurry," Bradford said, and the timeline to production for any projects which need to be explored for and developed will be lengthy.

While Australia's government said in a Sept. 30 market assessment that 2019 will be the fifth year of nickel's market deficit, Bradford cited Roskill's forecast of increasing nickel deficits out to 2030, when it is expected to breach 500,000 tonnes.

The government forecasts nickel to average just more than US$13,800 a tonne in 2019, before rising to US$16,500/tonne in 2021, which largely depends on China's stainless steel consumption growth and how ongoing U.S.-China trade tensions play out for the sector.

S&P Global Market Intelligence expects that Indonesia's nickel ore export ban, which will be implemented Jan. 1, 2020, will have a substantially negative impact on output from China's nickel pig iron sector — the main consumer of Indonesian nickel laterite ore — in 2020 and 2021.

This will result in a much tighter primary market and higher nickel prices, with Market Intelligence forecasting the average London Metal Exchange three-month nickel price to increase from US$14,087/tonne in 2019 to above $16,000/tonne in both 2020 and 2021.

Bradford later told reporters Australia has the potential to fill the gap, given 70% of it is unexplored.

Australia's government forecasts its nickel mine production will hit 207,000 tonnes in fiscal 2021 from 150,000 tonnes in fiscal 2019, while A$203 million was spent on nickel and cobalt exploration in fiscal 2019. This is broadly in line with fiscal 2018 having picked up late in 2017 on expectations of market growth in battery manufacturing.

The government forecasts Australia's nickel refinery production to grow at 9.1% a year to reach 141,000 tonnes in fiscal 2021 from 114,000 tonnes in fiscal 2019, supported by de-bottlenecking projects and capacity expansions to feed that battery demand.

BHP Group plans to add nickel sulfate capacity to Western Australia's Kwinana refinery, with the first stage of 100,000 tonnes annual capacity potentially coming online in 2020.

Bell Potter Research Analyst Peter Arden said in an interview looking for large-scale nickel sulfide deposits is time consuming and costly, which showed when juniors looking for "nearology" plays around Independence Group's Nova discovery in Western Australia's Fraser Range yielded nothing.

Creasy Group unveiled a 4.2 million tonne resource in 2018 for its 2015 Silver Knight discovery in the Fraser Range, but the private group has said little about it since.

Supply chain risks

Bradford also sees a risk that the marginal demand of nickel from electric vehicles could be disrupted by a yet-to-be-invented new battery technology that doesn't use any nickel, but remains confident that proving and commercializing such technology would take about a decade.

He said nickel gives better performance and higher energy densities, which means better range from vehicles, and the only way to put less nickel into batteries is to increase the cobalt, which is risky given much of it comes from Congo.

Meanwhile stainless steel producers, who comprise the bulk of nickel demand, "always have the option to make a less nickel-rich 300 Series stainless steel and go for dodgier stainless steel that will rust sooner," he said.

S&P Global Market Intelligence does not expect higher nickel prices to result in significant substitution to battery types with little or no nickel content as the metal plays a specific role in battery chemistry that cannot be replicated by others such as cobalt.

Nickel analyst Jason Sappor said in an interview that any potential substitution of nickel in the battery sector as a result of high prices would only have a negligible impact on demand, given Market Intelligence expectations that longer-term demand will continue to be driven by stainless steel consumption.

However, he said the recent surge in nickel prices has caused nickel-heavy 304-series austenitic stainless steel prices in China to also rise by 5% month-over-month in September to their highest levels since October 2018; while Chinese non-nickel containing 430-series ferritic stainless steel prices rose by 3% over the period.

"In the near term, if these trends continue then Chinese stainless steel consumers could substitute austenitic stainless steels with ferritic stainless steels," Sappor said, which in turn could encourage domestic stainless steel producers to increase their output of non-nickel containing stainless steel variants to meet the possible shift in demand.

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