History of the NPI industry
Present situation
Next few years...
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Contents
© Hatch Associates Limited, 2012 2
Conclusions
40,000
50,000
60,000
Chinese NPI production (kt nickel content)
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Chinese NPI production really started to take off in 2006/07 as the LME nickel price rose to record highs
LME Ni price ($/tonne)
200
250
300
© Hatch Associates Limited, 2012
0
10,000
20,000
30,000
Apr
2005
Aug 2
005
Dec 2
005
Apr
2006
Aug 2
006
Dec 2
006
Apr
2007
Aug 2
007
Dec 2
007
Apr
2008
Aug 2
008
Dec 2
008
Apr
2009
Aug 2
009
Dec 2
009
Apr
2010
Aug 2
010
Dec 2
010
Apr
2011
Aug 2
011
Dec 2
011
Source: Antaike, MB, Hatch
3
0
50
100
150
2005
2006
2007
2008
2009
2010
2011
Chinese primary nickel consumption by source, kt
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Nickel pig iron now accounts for more than 30% of China’s primary nickel consumption, up from just 2% in 2005
400
500
600
© Hatch Associates Limited, 2012
Source: Antaike, China Customs, Hatch
4
0
100
200
300
2005 2006 2007 2008 2009 2010
Nickel Cathode Nickel Salt NPI Net Imports
Vale13%
Norilsk13%
Other26%
Share of nickel processing capacity, 2011
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Taken as a whole, China’s NPI industry rivals the major nickel players such as Norilsk and Vale
� Emergence of NPI in 2006/07 as Ni prices rose
� Quick/simple method of backward integration
� Cheaper/easier than bringing other greenfield
© Hatch Associates Limited, 2012
13%
China NPI*12%
BHP8%Jinchuan
8%
Xstrata5%
Japanese4%
Anglo American
4%
Eramet3%
Queensland Nickel
4%
*China NPI = actual production, not capacity
Source: Company reports, Hatch
� Cheaper/easier than bringing other greenfieldprojects on stream
� NPI now accounts for more than 30% of China’s primary Ni consumption
� The industry as a whole rivals Norilsk/Vale in terms of size
� But...� Still very fragmented� In a process of change� Faces threats particular to NPI industry
5
History of China’s NPI industry
Present situation
Next few years...
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Contents
© Hatch Associates Limited, 2012 6
Conclusions
Major Chinese NPI Producers (ktpy Ni contained)
Company Location Process ProductCapacity
(Ni Content)
Shandong Haixin Shandong BF, SAF NPI (10-15% Ni) 30
Zhanhua Weiye Nickel Industry Shandong SAF NPI (10-15% Ni) 20
Inner Mongolia Shangdu Industry Park Inner Mongolia SAF NPI (10-15% Ni) 20
Fujian Dingxin (Tsingshan Holding Group) Fujian SAF NPI (10-15% Ni) 20
Jiangxi Jiangli Jiangxi PAL Nickel Metal 15
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Currently, all NPI producers are equipped with either BF (Blast Furnace) or SAF (Submerged Arc Furnace) technology, and production capacity of most producers is below 10kt per year
© Hatch Associates Limited, 2012
Source: Antaike, company reports, Hatch
Guangxi Yinyi Guangxi PAL Nickel Metal 12
Zhanhua Hugo Dragon Metal Limited (ZhanhuaQingxiang)
Shandong BF NPI (6-8% Ni) 10
Xuzhou Jinxiang Metallurgy Jiangsu SAF NPI (10-15% Ni) 10
Chaoyang Haotian Non-ferrous Metals Liaoning BF + EF Matte 10
Shanxi Dakang Group Shanxi BF NPI (4-6% Ni) 9
Henan Qingpu (Tsingshan Holding Group) Henan BF NPI (4-7% Ni) 8
Sichuan Jinguang Group Sichuan SAF NPI (10-12% Ni) 6
Huaibei Xinyuan Ferronickel Smelter Anhui SAF NPI (10-15% Ni) 6
Guangxi Xinheli Guangxi BF NPI (1-2% Ni) 4
Sichuan Jinguang Group Sichuan BF NPI (1-2% Ni & 4-6% Ni) 4
Fujian Xin'anjiang Nickel Alloy Zhejiang SAF NPI (10-15% Ni) 4
Total 188
7
Distribution of NPI producers in China
� Many NPI producers in Inner Mongolia previously smelted other alloys (e.g. FeSi, FeMn) and use SAF technology
� Some NPI producers in Shandong,
Inner Mongolia
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Chinese NPI producers are mainly located in Shandong, Shanxi, Inner Mongolia and Jiangsu. Linyi in Shandong province is the largest NPI producing region
© Hatch Associates Limited, 2012
Source: Hatch field research
� Some NPI producers in Shandong, Jiangsu and Fujian relatively new with SAF facilities built in recent years and have larger production capacity
� BF NPI producers are mainly located in Shandong, Shanxi and Jiangsu, and these BFs were previously used to produce pig iron. These operations under threat from government closures
Shanxi
Shandong
Jiangsu
Fujian
8
Chinese nickel ore imports by country, kt gross weight)
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
The Chinese NPI industry is almost completely reliant on importing nickel ore from Indonesia and the Philippines at present
20,000
25,000
30,000
© Hatch Associates Limited, 2012
Source: China Custom, Hatch
9
0
5,000
10,000
15,000
2004 2005 2006 2007 2008 2009 2010
Philippines Indonesia Others
� Indonesia and Philippines the key sources of laterite ore for NPI producers
Chinese laterite ore imports, 2010
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
The nickel ores imported from Indonesia and the Philippines generally supply different customers given the variance in grade
50
60
70
14
16
18
20Mt $/t
© Hatch Associates Limited, 2012
Source: China Customs, Hatch
� Ore imported from Indonesia generally higher-grade i.e. >1.5% and favoured by SAF producers
� Ore imported from Philippines generally lower-grade i.e. <1.7% and used largely by BF producers
10
0
10
20
30
40
0
2
4
6
8
10
12
Philippines Indonesia
Imports (LHS) CIF price (RHS)
Chinese NPI production by process route
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Producing NPI via electric furnaces has become more popular as the government has targeted small blast furnaces for closure
14%
33%
2008 2010 2011
© Hatch Associates Limited, 2012
Source: CBIChina, Hatch
11
45%
41%65%
35%
67%
33%
SAF BF Other
Chinese NPI production by grade (based on nickel content)
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
NPI production has shifted toward higher-grade material as the industry has matured and the use of electric furnaces has become more widespread
2009
18%
2010
© Hatch Associates Limited, 2012
Source: TISCO, Hatch
The reduction of low grade (<2%) nickel NPI is because:
a) the government has been shutting down some mini BFs; and b) low grade nickel NPI has a relatively small market
12
40%
21%
39%
30%
52%
< 2% Ni
4-8 % Ni
> 10% Ni
Planned NPI projects in China (ktpy nickel contained)
Company Location Process StateCapacity
(Ni Content)
Sinosteel Hebei PFK* Phase I, commissioned in 2011 15
Sinosteel Hebei PFK* Phase II, planning 45
JNMC Guangxi RKEF Planning 100
Jien Nickel Inner Mongolia RKEF Phase I, commission in 2013 20
Jien Nickel Inner Mongolia RKEF Phase II, planning 80
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
More than 600kt of new NPI production capacity has been announced and this will have a big impact on the nickel ore markets
© Hatch Associates Limited, 2012
*Pobuzhsky ferronickel plant process: old ferronickel process developed in the Ukraine
Source: Antaike, company reports, Hatch
Jien Nickel Inner Mongolia RKEF Phase II, planning 80
Macrolink Group Guangxi RKEF Planning 50
Sichuan Jinguang Group Guangxi RKEF Commission in 2013 50
Guangdong Guangxin Holding Group Guangdong RKEF Commission in 2012 50
Anhui Tenglong Alloy Anhui RKEF Commission in 2013 20
Hanking Group Liaoning RKEF Phase I, commission in 2013 30
Hanking Group Liaoning RKEF Phase II, planning 30
Delong Nickel Industry Jiangsu RKEF Commission in 2012 20
Taiwan E-United Group Fujian RKEF Planning 30
Fujian Fufeng Fujian RKEF Planning 50
Ruitian Steel Fujian RKEF Planning 30
Total 620
13
History of China’s NPI industry
Present situation
Next few years...
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Contents
© Hatch Associates Limited, 2012 14
Conclusions
Chinese nickel ore imports by country, kt gross weight)
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
The Chinese NPI industry is almost completely reliant on importing nickel ore from Indonesia and the Philippines at present
20,000
25,000
30,000
© Hatch Associates Limited, 2012
Source: China Custom, Hatch
15
0
5,000
10,000
15,000
2004 2005 2006 2007 2008 2009 2010
Philippines Indonesia Others
Nickel reserves and resources, Mt nickel content
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Should Indonesia ban the export of nickel ores, the Chinese NPI industry may become even more reliant on the Philippines for ore supply
20
25
30
35
© Hatch Associates Limited, 2012
Source: Metalytics, USGS, Hatch
16
0
5
10
15
Laterite reserves Laterite resources Sulphide reserves Sulphide resources
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Thoughts and conclusions…
� NPI has grown to become a major source of primary nickel
� Will remain but is constantly evolving and maturing as an industry� Likely to eventually consolidate into larger producers, producing material similar to a FeNi
� Another 400-500kt of primary nickel will be needed over the next ≈ 15yrs to satisfy China’s likely
© Hatch Associates Limited, 2012 17
� Another 400-500kt of primary nickel will be needed over the next ≈ 15yrs to satisfy China’s likely increase in demand
� unless there is a sharp increase in the scrap ratio
� NPI industry faces threats, most notably at the moment the Indonesian ban on nickel ore exports� will have to find alternative supplies, perhaps from further mining expansion in Philippines
� smelters to backward-integrate, purchase mining rights in countries with laterite resources?
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Contacts for further information
Hatch Beddows Strategy Consulting
+44 20 7906 5100 (switchboard)�
9 Floor, Portland House, Bressenden Place, London SW1E 5BH�
© Hatch Associates Limited, 2012 18
Hatch Beddows is a member of the HATCH GROUP of companies
�
+44 20 7963 0972Fax
+44 20 7906 5119�
ConsultantRobert Cartman