Industry Trend Analysis - Russian Nickel On A Downtrend In 2017 - SEPT 2017

BMI View: We have revised to the downside our forecast for Russian nickel production in 2017, due to the closing down of a nickel mine and lower-than-expected output in Q117. Our outlook for domestic production on a five year horizon remains bleak due to falling nickel prices, which will lead to a decrease in Russia's share of the global nickel market from 12.7% in 2017 to 12.2% in 2021.

We expect nickel production in Russia to remain on a negative growth trend in 2017, following a contraction of 4.8% y-o-y in 2016. The country's nickel sector will struggle this year mainly due to ongoing operational challenges at Norilsk Nickel mines, which accounts for over 80% of domestic output, and the closure of another nickel company following mounting financial losses. We have revised down our previous forecast of 1% average nickel production growth this year to a decrease of 5%, meaning absolute production in the country will drop from 256kt in 2016 to 243kt in 2017.

Russian nickel production will be most affected by the underperformance of the largest nickel producer in the world, Norilsk Nickel. The company's H117 consolidated nickel production results amounted to 103kt, a 15% decrease y-o-y, while production from Russian operations totalled 98kt, down 1% y-o-y. The company's poor results originated from operational challenges revolving around the decommissioning of a nickel plant at the company's polar division in late 2016, which led to an increase in work-in-progress material. The company retains a guidance of 206-211kt of nickel production in 2017, slightly below the 206-212kt guidance during 2016.

Growth To Be Subdued
Russia - Nickel Production ('000) & Growth (% y-o-y change), 2017-2021
Source: BMI

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