Nickel market may be missing the bigger picture – by Roskill Information Services (Mining.com – December 16, 2013)

http://www.mining.com/

With 2014 quickly approaching, all eyes in the market appear to be turned east to Indonesia.

As of the beginning of December, the Indonesian government has signalled that it would proceed with putting into effect a ban on unprocessed mineral ores.

Roskill’s nickel analyst, Thomas Hohne, answers some of the major questions related to the ban and its effect on the nickel market, and shares some of Roskill’s views of what other factors will be driving the nickel market in the years to come. What should we expect to happen come January 2014?

Shipments are set to be barred from January 12th onwards as proposals for a phased introduction of the ban have been discussed, but not adopted, as of yet. With Indonesia’s earnings from ore exports in the range of US$10 billion in 2013, much of which would evaporate overnight, pressure for some intermediate solution will remain. Because of this, however, any temporary solution is likely to be reached after the imposition of the ban, rather than before. Moreover, Indonesian officials have already indicated that even as the legislation will go ahead, implementation of the ban may allow for some amendments in practice.

What will be the effect of the ban on the nickel market?

Indonesian nickel ore accounted for approximately 59% of China’s nickel ore imports in 2013, but demand for nickel ore has been artificially elevated in anticipation of the ban. Although Roskill estimates Chinese production of charge and refined nickel at 659kt in 2013, real demand is considerably lower. Stockpiles of unprocessed nickel ore in Chinese ports are estimated to be in the range of 20Mt, while consumer stocks of nickel pig iron (NPI) are estimated at over 280kt. Roskill also expects that in spite of a temporary disruption early in the year, ore exports from Indonesia will continue, with the Philippines increasing exports.

Production of NPI in China is expected to flatten out, bringing supply in line with real demand. So far, the effect on prices of the announced ban has been relatively subdued. Prices made a small recovery in the first week of December, but this followed a drop in November that pushed the price of nickel back to well under US$14,000/t. In combination with the stockpiles of nickel ore and NPI, there is sufficient flexibility in the market such that any increase in prices as a result of the ban will likely be gradual, although speculative activity could result in short-term spikes.

What will be the likely medium and long-term implications of the ban?

Roskill’s nickel report provides an overview of a selection of the 89 smelter proposals that Indonesian officials report to have received, of which only a small portion have commenced construction. In China’s case, when NPI first started to be produced, production increased by around 175kt over a period of five years. This time around, projects in Indonesia benefit from strong financial backing and access to established technologies, but face a diminished price outlook and infrastructural challenges, particularly as regards to access to electricity. Rotary kiln electric furnace (RKEF) projects may be particularly delayed and Roskill forecasts production of NPI in Indonesia in terms of nickel content to increase to around 37kt in 2015, to just under 150kt by 2018.

Production of NPI in Indonesia (and, possibly, the Philippines) also circumvents the 20% export tariff that China imposes on exports of NPI, and opens up the possibility of exports of NPI to the rest of the world – although with most of the smelter projects Chinese-owned, this would probably only account for a small share of the total production of NPI.

For the rest of this article, click here: http://www.mining.com/web/nickel-market-may-be-missing-the-bigger-picture/