Production troubles struck several of the world's top primary nickel companies in the third quarter, dampening output of the metal at a time when the market was already tight.
Top nickel producers PJSC Norilsk Nickel Co., Glencore PLC, PT Vale Indonesia Tbk, BHP Group and Eramet SA all reported lower primary nickel output during the three-month period compared to the third quarter of 2020 as accidents, production slowdowns and persistent supply disruptions weighed on producers, according to an S&P Global Market Intelligence analysis.
Primary nickel refers to the nickel in smelter and refinery products, including refined nickel, nickel pig iron and ferronickel, while mined nickel refers to the nickel in ores coming out of the ground.
"This year has been another very challenging year for us," Andrey Bougrov, senior vice president of sustainable development at Norilsk Nickel, said during a Nov. 29 company call. "On top of COVID-related remaining restrictions, we also had to deal with two industrial incidents."
Russia-based Norilsk Nickel's production dropped 15.5% year over year during the September quarter, while mining behemoth Vale's third-quarter nickel production fell 36.5%. Both output declines were largely due to supply disruptions.
Higher nickel prices, caused by robust demand and tight supply, shielded some of the leading companies from significant financial loss during the September quarter. The London Metal Exchange nickel cash price reached $21,046 per tonne Oct. 20, a seven-year high.
The world is expected to flip from a 110,000-tonne primary nickel deficit in 2021 to a surplus in 2022 when new supply comes online in Indonesia, according to a Nov. 24 report by Market Intelligence senior analyst Jason Sappor. The anticipated pivot to electric vehicles could jolt demand for battery-grade nickel. Analysts have forecast that global nickel consumption from passenger plug-in EV batteries could reach 511,000 tonnes by 2025, up from 100,000 tonnes consumed in 2020.
But the main catalyst for strong nickel demand will continue to be steel.
"From a demand point of view, the stainless market in the U.S. and in Europe remains really strong and very short of material," Stuart Burns, an expert in metal supplies, said in an interview. Burns is the editor-at-large and founder of Metal Miner, a metals procurement platform. "That's driving sustained demand for nickel going into the alloying industry, and the result has been that nickel prices have been really well supported."
'Another very challenging year'
A string of unfortunate events has trailed the world's leading nickel producers in 2021.
Although it maintained its ranking as the world's No. 1 producer of primary nickel, Norilsk Nickel produced 9,220 tonnes less in the third quarter compared to the same quarter in 2020.
Early in 2021, Norilsk Nickel temporarily shut down the Oktyabrsky and Taimyrsky mines in Russia after flooding. The Oktyabrsky mine returned to full capacity in May, and the Taimyrsky mine has been operating at partial capacity since June. The company expects Taimyrsky to return to full capacity in early December. The mining and metallurgical company also suspended its Norilsk concentrator when the collapse of an ore transfer point and walkway in February led to three fatalities.
Norilsk Nickel revised its 2021 nickel market forecast and expects the market to book a 149,000-tonne deficit in nickel by the end of this year, a dramatic swing from its previous estimate of a 52,000-tonne surplus in 2021. Robust demand from the stainless steel and battery sectors, coupled with supply chain issues and production slowdowns in Indonesia due to the COVID-19 pandemic, have been the main drivers behind the deficit, the company said Nov. 29. For 2022, the company forecast a 59,000-tonne surplus, primarily of low-grade nickel, with high-grade nickel balanced but at risk of deficit.
Vale SA's primary nickel production also took a hit, dropping it from a No. 2 global ranking in the second quarter to a No. 6 ranking in the third quarter. Vale's production plunged 35.6% year over year to 11,473 tonnes in the September quarter, excluding third-party feeds and output from its 44%-owned PT Vale Indonesia subsidiary. PT Vale Indonesia ranked among the top five primary nickel producers during the third quarter but saw production tumble. The company's output, which includes nickel matte, declined 6.9% during the three-month period.
A labor strike that started in early June at Vale's Sudbury operations in Canada captured headlines and stalled nickel production. The site — made up of five mines, a mill, a smelter and a refinery — produces nickel as well as copper, cobalt, gold, silver and platinum group metals. The company reached an agreement with the workers' union in August, but production activity has been slow to return to prestrike levels.
An incident at Vale's Totten nickel mine, which forms part of its Ontario Division operations in Sudbury, resulted in 39 employees trapped underground. The miners were rescued and no injuries were reported, but production has been halted at the site, the company said in October. In addition, a fire at Vale's Salobo mine in Brazil halted operations for 18 days. There were no injuries and activity at the site has since resumed. In addition, Vale's Onca-Puma mine in Brazil stopped after Brazil's Pará state suspended an operating license.
Vale slashed its nickel guidance and forecast annual nickel output in 2022 and 2023 to range from 175,000 to 190,000 tonnes. Nevertheless, the company maintained optimism for its nickel business.
"Our long-term outlook for nickel remains very positive, driven by strong demand in the EV sector with the prevalence of nickel-rich batteries," Vale said in a Nov. 29 report.
Swiss mining company Glencore's nickel production slid year over year by 3,200 tonnes, or 12.0%, in the third quarter. The company attributed the slump in output to nagging production issues at the Koniambo plant in New Caledonia.
"When we talk about nickel, it's always of importance to talk about our focus asset, Koniambo," Peter Freyberg, Glencore's head of industrial assets, said during a Dec. 2 company investor day. "The overall nickel output is obviously contingent on that. And as you'd be aware from the production report, we had a very difficult first three quarters. It has taken some time to recover from the very serious impact that COVID had on the site and plant in 2020."
Mined nickel stays strong
The volume of production from nickel mining operations, such as ore and concentrates, showed a brighter picture, with production recovering for some producers during the September quarter. The top five producers of mined nickel reported output totaling 26,559 tonnes in the third quarter, 29.1% more than the same quarter of 2020.
Mined nickel output by Finland-based Terrafame Mining Oy rose 39.8% year over year during the third quarter, to 1,853 tonnes. The mined nickel output of Tokyo-headquartered Sumitomo Corp. inched up quarter over quarter from 5,100 tonnes to 5,200 tonnes. The company restarted its 54.2%-owned Ambatovy nickel mine in Madagascar in March after temporarily stopping production the year prior due to the COVID-19 pandemic.
Australian mining company IGO Ltd. recorded a 5.3% decrease in production compared to the year-ago period from its nickel-copper-cobalt Nova mine in Western Australia.
Toronto-headquartered Lundin Mining Corp. reported a 730-tonne decrease in output during the period, with mined nickel production declining 15.0% year over year to 4,124 tonnes.
Anticipated nickel deficits are driving companies to seek new sources. Nickel exploration budgets in 2021 have reached a seven-year high, climbing to $422.9 million, from $333.9 million in 2020, with the increase primarily fueled by high nickel prices and optimism over the rising use of nickel in electric vehicle batteries, according to Market Intelligence researcher Eillen Grace Dela Cruz. Financing for nickel exploration in the first nine months of 2021 was 22% more than in 2020, according to Dela Cruz.