Nickel pig iron – A long term solution?

Robert Cartman - Hatch

 3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Contents

History of the NPI industry

Present situation

Next few years...

Conclusions

© Hatch Associates Limited, 2012 2

 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

Chinese NPI production (kt nickel content) LME Ni price ($/tonne)

300 60,000

250 50,000

200 40,000

150 30,000

100 20,000

50 10,000

0 0
Apr 2005
Aug 2005
Dec 2005
Apr 2006
Aug 2006
Dec 2006
Apr 2007
Aug 2007
Dec 2007
Apr 2008
Aug 2008
Dec 2008
Apr 2009
Aug 2009
Dec 2009
Apr 2010
Aug 2010
Dec 2010
Apr 2011
Aug 2011
Dec 2011
2005

2006

2007

2008

2009

2010

2011

Source: Antaike, MB, Hatch

© Hatch Associates Limited, 2012 3
 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

Chinese primary nickel consumption by source, kt

600

500

400

300

200

100

0
2005 2006 2007 2008 2009 2010

Nickel Cathode Nickel Salt NPI Net Imports

Source: Antaike, China Customs, Hatch

© Hatch Associates Limited, 2012 4
 3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Taken as a whole, China’s NPI industry rivals the major nickel players such
as Norilsk and Vale

Share of nickel processing capacity, 2011

Vale
13%
Emergence of NPI in 2006/07 as Ni prices
Other rose
26%

Quick/simple method of backward integration
Norilsk
13%

Cheaper/easier than bringing other greenfield
projects on stream

NPI now accounts for more than 30% of

Queensland China’s primary Ni consumption
Nickel
4%
Eramet
The industry as a whole rivals Norilsk/Vale in
3% China NPI* terms of size
12%
Anglo
American
But...
4% Japanese
Still very fragmented
4% BHP
Xstrata
In a process of change
Jinchuan 8%
5%
Faces threats particular to NPI industry
8%

*China NPI = actual production, not capacity

Source: Company reports, Hatch
© Hatch Associates Limited, 2012 5
 3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Contents

History of China’s NPI industry

Present situation

Next few years...

Conclusions

© Hatch Associates Limited, 2012 6

 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
Major Chinese NPI Producers (ktpy Ni contained)
Capacity
Company Location Process Product
(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
Guangxi Yinyi Guangxi PAL Nickel Metal 12
Zhanhua Hugo Dragon Metal Limited (Zhanhua
Shandong BF NPI (6-8% Ni) 10
Qingxiang)
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
Source: Antaike, company reports, Hatch
© Hatch Associates Limited, 2012 7
 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
Distribution of NPI producers in China

Many NPI producers in Inner Mongolia

previously smelted other alloys (e.g.
Inner Mongolia FeSi, FeMn) and use SAF technology

Some NPI producers in Shandong,

Shanxi Jiangsu and Fujian relatively new with
Shandong
SAF facilities built in recent years and
have larger production capacity
Jiangsu

BF NPI producers are mainly located in

Fujian Shandong, Shanxi and Jiangsu, and
these BFs were previously used to
produce pig iron. These operations
under threat from government closures

Source: Hatch field research

© Hatch Associates Limited, 2012 8

 3RD EURONICKEL CONFERENCE, HELSINKI, 2012
The Chinese NPI industry is almost completely reliant on importing nickel
ore from Indonesia and the Philippines at present

Chinese nickel ore imports by country, kt gross weight)

30,000

25,000

20,000

15,000

10,000

5,000

0
2004 2005 2006 2007 2008 2009 2010

Philippines Indonesia Others

Source: China Custom, Hatch

© Hatch Associates Limited, 2012 9
3RD EURONICKEL CONFERENCE, HELSINKI, 2012
The nickel ores imported from Indonesia and the Philippines generally
supply different customers given the variance in grade

Chinese laterite ore imports, 2010

Mt $/t
20 70

18
60
16

Indonesia and Philippines the key sources of
14 50 laterite ore for NPI producers

12
40
Ore imported from Indonesia generally
10 higher-grade i.e. >1.5% and favoured by
30
SAF producers
8

6 20
Ore imported from Philippines generally

lower-grade i.e. <1.7% and used largely by
4
BF producers
10
2

0 0
Philippines Indonesia

Imports (LHS) CIF price (RHS)

Source: China Customs, Hatch

© Hatch Associates Limited, 2012 10

 3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Producing NPI via electric furnaces has become more popular as the
government has targeted small blast furnaces for closure

Chinese NPI production by process route

2008 2010 2011

14%

35% 33%
45%

65% 67%
41%

SAF BF Other

Source: CBIChina, Hatch

© Hatch Associates Limited, 2012 11
 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

Chinese NPI production by grade (based on nickel content)

2009 2010

18%

39% 40%
< 2% Ni
4-8 % Ni
52%
> 10% Ni

30%

21%

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
Source: TISCO, Hatch
© Hatch Associates Limited, 2012 12
 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

Planned NPI projects in China (ktpy nickel contained)

Capacity
Company Location Process State
(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
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
*Pobuzhsky ferronickel plant process: old ferronickel process developed in the Ukraine
Source: Antaike, company reports, Hatch © Hatch Associates Limited, 2012 13
 3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Contents

History of China’s NPI industry

Present situation

Next few years...

Conclusions

© Hatch Associates Limited, 2012 14

 3RD EURONICKEL CONFERENCE, HELSINKI, 2012
The Chinese NPI industry is almost completely reliant on importing nickel
ore from Indonesia and the Philippines at present

Chinese nickel ore imports by country, kt gross weight)

30,000

25,000

20,000

15,000

10,000

5,000

0
2004 2005 2006 2007 2008 2009 2010

Philippines Indonesia Others

Source: China Custom, Hatch

© Hatch Associates Limited, 2012 15
 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

Nickel reserves and resources, Mt nickel content

35

30

25

20

15

10

Laterite reserves Laterite resources Sulphide reserves Sulphide resources

Source: Metalytics, USGS, Hatch

© Hatch Associates Limited, 2012 16
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
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?

© Hatch Associates Limited, 2012 17

3RD EURONICKEL CONFERENCE, HELSINKI, 2012
Contacts for further information

Hatch Beddows Strategy Consulting

 9 Floor, Portland House, Bressenden Place, London SW1E 5BH

 +44 20 7906 5100 (switchboard)

Robert Cartman
Consultant

 +44 20 7906 5119

Fax +44 20 7963 0972
 rcartman@hatch-europe.com

Hatch Beddows is a member of the HATCH GROUP of companies

© Hatch Associates Limited, 2012 18