Mining giant: Oversupply in nickel market will continue until 2030! How do you view the new changes in the metal supply side?
On February 20, BHP Billiton, the world's largest mining company, announced its financial report for the first half of the fiscal year. The interim results as of December 31, 2023 show that as demand for iron ore and other core commodities remains strong, BHP Billiton's revenue in the first half of the fiscal year increased by 6% year-on-year to US$27.232 billion; however, due to nickel asset impairment and other Due to the impact of provisions, BHP Billiton's net profit in the first half of the fiscal year fell 86% year-on-year to US$972 million.
The company recently announced a $2.5 billion impairment on the value of its Australian nickel assets after a surge in supply of battery metals from Indonesia dragged down nickel prices. BHP said in a statement referring to its nickel assets that the six-month period had been "challenging" and that the impairment "offset the impact of otherwise solid operating performance and overall healthy commodity prices."
Wang Yanqing, a nonferrous researcher at CITIC Futures, said that the current supply in the global nickel market shows the characteristics of "one ebb and flow". On the one hand, China and Indonesia's nickel production capacity is constantly being released, while on the other hand, overseas non-Indonesian production capacity is accelerating to be cleared. . The direct cause of this phenomenon is the continued decline in LME nickel prices, which puts pressure on the profits of overseas mines. The fundamental reason is that as China's electrolytic nickel production capacity continues to be released and Chinese companies register delivery brands on the LME, the surplus in the Chinese nickel market has begun to rapidly increase. Transmitted overseas, overseas mines that lack cost advantages are not only under pressure on operating profits, but also find it difficult to maintain their dominant market share, so they can only choose to reduce production.
Judging from the operation of BHP Billiton (BHP), Wu Jiang, a non-ferrous metals researcher at SDIC Essence Futures, said that the company is a typical multinational mining group with diversified operations. Its main mining assets include Chile's Escondida and Spence copper mines, Western Australia iron ore and coal mines, Potash fertilizer and other assets. In the past second half of 2023, assets such as copper, iron ore, and coal all showed strong performance in volume and price. However, nickel prices fell significantly during the year. The price of London nickel fell from US$30,000/ton to US$16,620/ton at the end of the year. Up to 44.5%. Compared with the average price in the second half of 2022 of US$26,075/ton, the average price in the second half of 2023 was US$18,540/ton, a drop of 28.9%.
BHP Billiton expects nickel market oversupply to continue until 2030
BHP Billiton pointed out in its latest analysis report that despite the uncertainty facing the global economy, the company remains optimistic about the long-term prospects of nickel. BHP Billiton CEO Henry said that the nickel market is expected to be oversupplied until the end of this decade (i.e. 2030).
Yang Lina, a researcher at the Founder Mid-Term Nonferrous and New Energy Metals Research Center, said that in addition to BHP Billiton's latest research report, many domestic and foreign research institutions and physical producers predict that the nickel surplus pattern may last for a longer period of time. In the market forecast, according to the current and planned normal release of production capacity, the overall nickel surplus pattern is expected to continue at least until 2026.
In recent years, the rapid growth of global nickel supply and demand has promoted the rapid growth of nickel-related investments. Secondary nickel supply, especially ferronickel supply, was the first to enter surplus. This is mainly due to the rapid growth of supply brought about by the continued release of Indonesian production capacity. Indonesia has abundant nickel resource reserves. Since the country implemented a ban on ore exports, it has attracted a significant increase in investment in the processing chain. In recent years, a large amount of production capacity, mainly nickel pig iron, has been released.
With the development of demand related to new energy vehicles, the focus of future production capacity release will shift to MHP-nickel sulfate/refined nickel. Even the original nickel pig iron production capacity has opened up multiple paths to convert to high matte nickel-nickel sulfate/refined nickel. With the substantial growth in supply in Indonesia and the multi-directional development of production paths, nickel's shortcomings in intermediate production capacity have almost disappeared.
From the perspective of the nickel market itself, Wu Jiang, a nonferrous researcher at SDIC Anxin Futures, believes that the market is facing cyclical excess problems and structural challenges. The former is mainly manifested in inventory rising from multi-year lows. All links in the industrial chain, including nickel sulfate, ferronickel and pure nickel at the product end, as well as intermediate products such as high-grade nickel matte and nickel cobalt hydroxide, have experienced high inventories and suppressed price performance.
The latter is mainly manifested in the complete opening up of multiple product routes, the comprehensive opening up of the conversion paths of secondary nickel and primary nickel, the complete elimination of technical factors that led to the 2022 London nickel squeeze event, and the breakdown of the premium of primary nickel over secondary nickel. If the value becomes negative, the profits at the production and processing ends will no longer have the basis to maintain for a long time.
On the supply side, Chinese-funded Indonesian mines continue to grow at a rapid pace, and Indonesian ferronickel production is expected to continue to rise, which will be reflected in the continued increase in China's output of electrolytic nickel, nickel sulfate and ferronickel. On the demand side, demand for stainless steel has reached a long-term plateau, and the decline in China's real estate growth has dragged down stainless steel consumption expectations; the overall growth rate of new energy vehicles has declined, and lithium iron phosphate has gained market share through technological iterations with its high cost performance and safety advantages. The share of ternary batteries has been reduced, and the growth rate of nickel consumption is expected to continue to be weakened.
Wujiang predicts that nickel output will be 3.713 million tons in 2024, with a growth rate of 8.7%, which is higher than the expected demand growth rate of 4%. The surplus will expand to 389,000 tons during the year, higher than 222,000 tons in 2023. Under such expectations, nickel prices will continue to find bottom cost support, and all links will continue to gradually move towards destocking and overcapacity through price cuts to solve the problem of increasing oversupply.
She said that the increase in ore-end potential and the cost pressure of mineral investment combined with ESG-related constraints on mining investment in recent years may restrict the growth potential of nickel ore-end supply, which in turn will continue to impose constraints on the sustainable development of the midstream and downstream. Therefore, although expectations of oversupply of nickel exist, mining-end constraints may not disappear, and mining costs will still limit the overall downward space for nickel prices.
From the perspective of future long-term development, Yang Lina believes that the elimination of mining-end constraints may continue to require a certain price to stimulate the growth of investment. At the same time, the recycling and development of renewable resources may go further. In addition, the advancement of new energy power battery technology will also bring uncertainty to the demand growth scenario for nickel.
Wang Yanqing believes that in the context of long-term surplus, it is expected that nickel prices may lack the elasticity to rise and may remain low and volatile for a long period of time, which may have three impacts: First, nickel prices may be sluggish due to surplus, which may It will erode the profits of electrolytic nickel production, further reopening the profit space for the production of nickel sulfate from nickel beans, and the structural excess of the industrial chain may be dynamically adjusted in the form of profit redistribution; secondly, the price decline of nickel and other energy metals may This will further improve the cost performance of ternary batteries, which in turn will promote the growth of nickel demand; finally, the long-term excess of nickel may lead to further clearance of production capacity, and some planned projects may also be affected. By then, the supply and demand of nickel will be balanced It may be gradually repaired.
Copper concentrate supply will be tight in 2024
BHP Billiton also recently stated that given current market conditions, the refined copper market is expected to experience a shortage, and by 2024, the supply of copper concentrate will become extremely tight. This prediction has attracted market attention to the future development of the copper industry.
Niu Qiule, a researcher at the Founder Medium-Term Nonferrous and New Energy Metals Research Center, told reporters that although the TC of imported copper ore has recently been below US$30/ton, it has dropped significantly from the previous high of more than US$90/ton, reflecting the market's response to the Panama mineral rights dispute and Chile's The market is concerned about future supply disruptions after the strike, but global copper mine production is still expected to grow by 3.7% in 2024.
He said that behind the rapid growth of mines is not only the launch of new mines and the expansion of old mines, but also the increase in copper mine production in countries that face operational restrictions in 2023, including Chile, China, Indonesia, Panama and U.S.
Jiang Lu, chief analyst of CITIC Futures Industrial Products Group, said that the copper supply and demand pattern is expected to shift from tight balance to slight excess in 2024. The growth rate of copper supply will slow down slightly in 2024. The tightness of concentrates is mainly related to the disruption of overseas mine suspensions, while the supply of refined copper is expected to remain loose.
In terms of copper mines, if the neutral assumption is that the Cobre copper mine resumes production in the middle of this year, global copper mine production will increase by approximately 720,000 tons. Among them, the expansion of old mines and mine projects approaching production in 2024 can contribute about 570,000 tons of new increment; while the new increase brought by reconstruction projects is about 170,000 tons.
In terms of refined copper, the world is expected to add 1.332 million tons of new production capacity in 2024. The advantages of smelting capacity are concentrated in Asia, with a contribution ratio of as high as 61%, mainly in China, Japan, and India. Based on institutional research, it is optimistically predicted that the new domestic smelting capacity in 2024 will be approximately 900,000 tons.
But so far, he said that domestic copper concentrate TC has stabilized at a historical low of US$30/dry ton. Amid the contradiction between excess domestic smelting capacity and tight supply of overseas copper mines, it is expected that domestic refineries may reduce production shutdowns and advance maintenance plans in the first half of this year. , there are restrictions on the acceleration of annual refined copper production.
Niu Qiule said that global copper demand will face complex risks and opportunities in 2024. Geopolitical conflicts, global economic slowdown, high interest rate environment, weak post-epidemic recovery and other factors may suppress traditional demand for copper, especially the important impact of the downturn in China's construction industry on global copper consumption.
Jiang Lu predicts that in terms of traditional consumption, power infrastructure consumption will continue to play an important supporting role in 2024, while home appliances and transportation consumption may be weaker than in 2023, and weak electronic consumption is expected to improve; in terms of emerging consumption, new energy and wind and solar demand will increase in 2024 It is expected to remain the foundation for maintaining the resilience of copper consumption.
"Although there are challenges in the short term, demand growth in emerging areas is expected to provide strong support for the copper market. We expect global refined copper consumption to grow by 2.7% to 27.066 million tons in 2024." Niu Qiule finally predicted.
