Good Morning / Evening, today the team thought we would dive into the murky and volatile world of nickel. Specifically, focusing tighter and thinking about the impact of robust spot prices of >US$10.50/lb on factors such as payabilities and product grade. The simple logic being as demand for nickel increases in theory, spot prices increase, as does payabilities, whilst product discounts / specifications reduce. As we know it is always a bumpy ride with nickel, but robust spot prices and long absent M&A shows interest has returned.
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Not All Nickel Is Equal Starting with Nickel 101. There are a few process streams to produce nickel from mined ores, which very simplistically are split into: (I). Traditional sulphide ores processed to produce a concentrate which is then smelted/refined; and (II). Lower grade lateritic ores which are processed through either through HPAL (High Pressure Acid Leach – limonite ores) or RKEF (Rotary Kiln-Electric Furnace – saprolite ores). Additionally, there are other processes, especially with smelting saprolites, but these are the key ones.From these processes there are a range of intermediate and finished products produced in the manufacture of nickel, on its way eventually to your stainless-steel appliances or the growing battery market. This includes nickel concentrate, briquettes, matte, mixed hydroxide, sulphate, and nickel pig iron or ferronickel. All of these contain different levels of nickel and are priced differently. Traditionally, products suitable for batteries came from Class I nickel sources (vs Class II such as RKEF) but this is changing (e.g., Tsingshan producing matte).To highlight this, in the chart below GMR has plotted the payability of a range of nickel products that have been reported in the market. Payability is simply what percent of the nickel contained in a product the downstream purchaser is paying for. The discount or “fee” is designed to cover further processing costs and a margin. A general rule of thumb is the less processing a product requires, the higher the payability. For example, unprocessed saprolite may be <20% payability versus nickel pig iron at ~85% payability.The chart highlights a recent pick up in payabilities for products in tandem with higher spot prices. Also, there are long term trends for higher payabilities for traditional nickel concentrate from 60%-65% historically to 80%-85% today for new contracts. The exception to this is NPI where a flood of material out of Indonesia pushed down the price in 2019 and again more recently mid last year.
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Nickel Payabilities Relative To LME (%)
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Source: Global Mining Research, Company Data – WSA, IGO, NIC, FM.
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There has also been a clear trend observed in the latest quarterly reports for lower nickel product grades. This is not surprising when we think of higher spot prices and therefore product demand. Customers are likely to not penalise producers to the same degree for lower quality products.For concentrate producers being able to produce a lower grade concentrate means typically means higher recoveries which results in more metal units. Other factors to consider are the Fe/S and MgO ratios of intermediate nickel products.
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Nickel Concentrate & NPI Product (% Ni)
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Source: Global Mining Research, Company Data – WSA, IGO, NIC, FM. * NPI product
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So, whilst the nickel spot price remains a key barometer of the industry, we have highlighted from recent company reporting the impact of robust prices on both product quality and pricing.This year has started well for nickel with spot up +10%. This follows on from 2021 with prices up nearly 30% and in keeping with historical annual volatility of +/- 30% yoy. It will be interesting to see how the ~2.4Mt/yr market reacts to several planned mine restarts, but it’s an EV world out there...
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