Rising nickel prices to support project development, Fitch says

In a recent industry report, Fitch Solutions forecast nickel mine production will grow by 8.3% year-on-year in 2021, above the average growth of 5.9% year-on-year over 2010-2019, but not fully replacing the 23.3% expected contraction in 2020’s nickel output.

Growth in the near term will be driven by a recovery in output in the Philippines and Indonesia, Fitch forecast. In the Philippines, lockdowns and supply chain constraints over the first half of 2020 reduced output by 27.7%.

Fitch expects this low base effect will support growth. In Indonesia, an export ban on nickel ore significantly hampered domestic opportunities for miners to sell their product, leading to a decline in production. Fitch estimates that mineral production will pick up in Indonesia as the country ramps up its nickel smelting and refining capacity. But Fitch notes the upside risk to its nickel mining growth forecasts depending on how quickly Indonesia will be able to ramp up its downstream capacity.

In the longer term, Fitch forecasts global nickel mine production to grow by an annual average rate of 3.7% year-on-year over 2021-2029, a significant slowdown from the 5.9% year-on-year average achieved from 2010-2019, which was boosted by higher nickel prices at the time and strong Indonesian output before another export ban in 2014.

By 2029, Fitch expects global annual nickel production to reach 2.7 million tonnes, up from 2.0 million tonnes in 2020. Indonesia surpassed the Philippines as the largest global producer in 2017 following the latter’s introduction of stringent environmental regulations. But Fitch believes the tables will turn in 2020 onwards, as the Philippines is set to regain its spot as the largest global producer due to Indonesia’s restriction on nickel ore exports leading to a halt to mining operations.

The other best-performing major nickel producer will be Australia, which maintains a stable regulatory environment and solid project pipeline, Fitch said. Australian nickel production growth will also remain positive over the coming years, due to its healthy project pipeline. Its nickel sector will increasingly gain investor attention as the rising battery trend prompts miners to develop projects in stable operating environments, Fitch said. A more positive price outlook for nickel, underpinned by solid demand growth, will support this view.

Finally, Russian nickel production will grow at the slowest rate of the top five major producing countries in the coming years as few new projects come online, according to Fitch.

In the long run, Fitch forecasts rising nickel prices will support project development as the economics of nickel mine projects becomes increasingly attractive.

This article first appeared in MINING.com, part of Glacier Resource Innovation Group.