Interview with Mark Selby, Nickel Market Expert & Commentator
Our previous interview: [ Ссылка ]
Recording date: 3rd March 2024
Less than 2 weeks ago, BHP in a half-year report commodity outlook:
*“While the supply glut was still contained mainly in the Class-II segment of the industry, operating conditions for integrated sulphide businesses, globally, remained solid. However, since the LME began to take delivery of Sino-Indonesian nickel cathode to its warehouses, thus catalysing price convergence between product classes*, loss-making has become widespread. If the LME nickel price is set to $16,000/t, close to the spot price in mid-February, as much as one-half of global production could be loss-making on a cash plus sustaining capex basis. Producers adopting more sustainable practices could be disadvantaged in this environment, with their efforts not yet recognised with a commercial premium that could help buffer profitability when the base price declines to cyclical lows. Due to the deterioration in the short-term and medium-term outlook for nickel, we have lowered our nickel price assumptions
We, we note that Wood Mackenzie’s long-term Indonesian nickel production forecast has increased by more than +200% between late–2019 and late–2023. Wood Mackenzie utilises a methodological framework for project assessment based on the kind of hurdle rates of return that a listed Western producer would be familiar with. Consequently, they have been continually surprised when Indonesian projects kept coming forward. These projects were also being delivered at significantly lower costs (and ramping up to nameplate more smoothly) than was thought likely just a few short years ago. Clearly, capital has been committed in the Sino–Indonesian nickel complex based on very different return parameters to those that underpin shareholder expectations of capital allocation processes in the West.
Jim Lennon at Macquarie, one of the only banks that invests time in some fundamental commodity research said that after travelling through China said that demand had been understated by more than 100ktpa and that 40-50 kt of supply had been not properly counted and has revised surplus for 2023 from more than 250kt to 150kt and acknowledgement that some of this is in-process inventory build rather than inventory for sale. More importantly said that the forecast for 2024 now 40kt – that is just 1% of supply – and acknowledged that if Indo supply fails to grow by 13% of forecast than could potentially move into deficit.
You see forecasts from 20-30 banks, but in reality, they all come from a combination of 4 sources: Wood Mackenzie, CRU, Shanghai Metals Market, and in the case of nickel and a few other commodities, the study groups like International Nickel Study Group. (other is copper,lead/zinc)
The banks take one or more of these forecasts, depending on how much focus commodities are at that bank, they then tweak the demand and supply numbers and it becomes “their” forecast so these groups Woodmac/CRU/SMM/INSG basically drive most of bank commodity and even consulting firm analysis.
International Nickel Study Group generally does a good job but depends on countries to provide forecasts and can do some work but doesn’t have a budget to do lots of fundamental analysis
Am going to focus on the most guilty – WoodMac’s demand forecasts for nickel have been ludicrous. They understate trend stainless and nickel demand growth, they overstate the rate at which scrap will grow and then (as BHP noted) do not get Indonesian supply right (that is a tough
In their Q4-2019 demand forecast, they had demand getting to 3.2 Million tonnes by 2030, and 4 million tonnes by 2040 (CNC forecast since 2019 is for 5 million tonnes by 2030, our current thinking is close to 6 million tonnes). WE ACHIEVED 3.2 MILLION TONNES IN 2023.
As a concrete example of the “cancer” that creeps in – WoodMac had the most ludicrous example that somehow demands for stainless was going to slow to less than half historical trend growth and that nickel scrap growth was going to increase so primary nickel demand for stainless was going to DROP by 2030 !
This completely crazy forecast has then showed up in reports by McKinsey and BCG who each assured me that the “do their own analysis” but had forecasts that were eerily similar to that flawed *WoodMac* forecast.
*CRU* not as bad, but nowhere close their 2023 forecast in 2019 was 2.75 Mt – again actuals will be close to 3.25 Mt when done – so missed by 500kt ….. That 2019 forecast for 2030 was 3.7 million tonnes, more than a million tonnes lower than CNC forecast (and where we will likely end up in 2025-2026)
Nickel has grown at 4-5% over long periods of time. EVs wil drive that higher for next decade so why did they have effectively just trend demand growth until 2030.
