The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry.
VANCOUVER – With nickel prices already up almost 40% in 2014, a suspension at Vale’s (NYSE: VALE) Goro mine in New Caledonia has pushed the price of the steelmaking component to a two-year high.
The Goro mine has limited impact on global nickel supplies whether it is running or not, so a stable metal market would react little to the suspension. However, the nickel market is far from stable and so the Goro news acted as fuel on the fire that has been heating up nickel for months.
Indonesia started that fire in January when it banned exports of nickel ore. For years China and Japan have imported raw nickel laterite ore from Indonesia and turned it into nickel pig iron (NPI), a cheaper alternative for steelmakers to pure nickel. The trade amounts to 450,000 tonnes a year, or almost a quarter of the 2-million-tonne global annual nickel market.
The export ban is intended to spur local processing and thereby capture more of the metal’s value domestically, but it will be years until Indonesia develops significant NPI production capacity.
In the meantime, NPI producers in China and Japan are working through the Indonesian ore they stockpiled last year, when rumours of the pending export ban gained momentum. Those stocks are keeping the nickel market roughly balanced this year, but once they are depleted NPI producers will be stuck, as there is no real alternative to Indonesian ore. There is some nickel laterite mining in the Philippines but production there is a shadow of Indonesia’s 450,000 annual tonnes.
The only hope for NPI producers is for Indonesia to backtrack on its export ban, but the odds of that happening in the near term are slim. For one, until a new president takes office in October the country has a lame duck government. Secondly, while a group of disaffected businessmen in Indonesia are lobbying to have the ban overturned, the measure has support from most political parties and from international nickel miners and producers, who see no problem with higher prices.
So it seems a quarter of the world’s nickel supply has indeed disappeared for some time. The result has been a sudden and sharp nickel market shift.
All last year nickel was in a bear market. Prices languished below US$14,000 a tonne and at least a third of the world’s nickel producers were losing money. Adding to the misery, several large new mines set into motion in the last nickel bull market of 2007 were primed to enter production and add to an oversupplied market.
Then on Jan. 12 Indonesia’s export ban abruptly flipped the nickel market from oversupply to supply crunch. Adding to the crunch, many of the world’s big new nickel mines are struggling.
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