ERAMET Nickel improved its current operating income despite low nickel prices in 2016

Stainless steel production is the main market for nickel, and accounts for two-thirds of its use. Since the start of the decade and up to 2014, growth in the stainless steel market was between 6% and 9% a year until it slumped abruptly in 2015 (-0.4% in 2015 on 2014). After a recovery in the first half of 2016, growth strongly rebounded in the second half of 2016, fuelled mainly by strong demand in China. Growth was 14% in the second half of 2016 compared with the same period in 2015. Thus, the stainless steel production growth was 9% in 2016 compared to 2015, from which 56% in China. The ERAMET Group is the world’s #1 producer of ferronickel. It operates its own mines, which are world class in terms of the quality and size of their resources.

Turnover by Market in 2016

Turnover by Market in 2016

In 2016, stainless steel was the main outlet for ERAMET Nickel’s products. The Sandouville and Eurotungstene plants give the Group access to various high value-added markets (nickel and cobalt salts, nickel metal, alloy powders, etc.).

 

Turnover (€ millions)

Turnover (€ millions)

Average LME nickel prices were at an historically low level of USD 3.93/lb in H1 2016. Average prices in H2 2016 were up 22% compared with the first half to USD 4.78/lb. For the full year, average nickel prices were down 19% from 2015 level (USD 4.35/lb vs. USD 5.37/lb). In this context, ERAMET Nickel’s turnover decreased 13% in 2016 compared with 2015.

 

Current operating income (€ millions)

 

Current operating income (€ millions)

Current operating income improved €142 million on 2015, to –€119 million, helped by the specific plan to reduce SLN's cash-cost.

 

Capital expenditure (€ millions)

Capital expenditure (€ millions)

ERAMET Nickel continued to reduce its capital expenditure.

 

Metallurgical Production (tons)

Metallurgical Production (tons)

Nickel metallurgical production at the Doniambo plant (New Caledonia) increased to 55,227 tonnes of Ni, up 1,858 tonnes relative to 2015.

As part of its plan to cut its cash-cost, SLN halted production of nickel matte in August 2016 to be exclusively specialised in the production of high value-added SLN25 ferronickel, a product much in demand by the stainless steel industry.

At the same time, ERAMET has begun the process of reconfiguring the Sandouville nickel refinery (France), which had been refining SLN nickel matte into nickel salts and nickel metal. Once the stocks of Caledonian matte have been depleted, feedstock for the refinery will be from a new European nickel matte source starting from the second half of 2017.

 

Cost reduction and performance improvement plans

In this environment, ERAMET Nickel took determined measures in response to this unprecedented crisis. As announced early in 2016: SLN implemented a specific plan to lower costs and improve operating performance. The target under the plan is to cut its cash-cost to USD 4.5/lb by the end of 2017, a reduction of 25% relative to the average in 2015, on an annual basis and under the economic conditions at the start of 2016. In line with this target, SLN's average cash-cost in 2016 was USD 5.06/lb, 16% lower than the average in 2015, under identical economic conditions. At the end of 2016, ERAMET Nickel 2014-2017 cost reduction and productivity improvement plan delivered a cumulated impact on current operating income of €142 million.

 

Asset disposals program

On 9 December 2016, ERAMET announced the signature of an agreement for the sale of Eurotungstene (specialised in developing, manufacturing and marketing metal and pre-alloyed powders) to Umicore as part of its asset disposals program. Closing of the transaction is subject to certain regulatory approvals and, provided these approvals are obtained, is expected to occur in the first half of 2017.

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