SYDNEY/JAKARTA – May 19 (Reuters) – When Indonesia vowed to halt exports of mineral ore to wring more profit from its rich resources, many predicted the policy would be an economic own-goal.
But in the case of nickel, at least, Indonesia is proving its doubters wrong as the price of the metal soars and Chinese producers starved of raw material begin to ship equipment for processing plants to the Southeast Asian nation.
Just four months after a ban on ore exports, one smelter is under construction and equipment for two others has been shipped from China to Indonesia, including a dismantled blast furnace, industry sources told Reuters.
At least two other firms plan to start construction of processing plants by year-end or shortly after, amid fears that China’s nickel-pig iron industry is running out of raw material.
“It’s been a success,” Energy and Mineral Resources Minister Jero Wacik told Reuters. One Chinese firm that told Reuters it expected to start production by year-end at the earliest said the smelter would produce nickel pig iron with 4 percent metal content, which then would be shipped back to China for production of higher value grades with 10-15 percent metal.
Analysts say new plants on the drawing board mean Indonesia’s nickel production could triple by end-2016, with investors starting to believe that Jakarta will hold the line on its ban despite past policy flip-flops.
Indonesia, the world’s biggest nickel ore exporter before the ban, has traditionally shipped thousands of tonnes of ore to customers such as China, who turn it into alloys such as nickel pig iron, a key ingredient in stainless steel.
January’s ban on nickel ore exports aimed to create a local processing industry, with Jakarta effectively foregoing $1.5 billion of ore shipments a year to move up the value chain.
Early market reaction was muted as traders eyed large stockpiles built up in China and Japan and raised doubts that Indonesia would stick to its plan. But nickel prices have since shot up as much as 50 percent as nickel pig iron and ferro-nickel producers fretted about longer-term shortages.
“I think people are starting to believe that the ban will stick in place,” said Andrew Mitchell, principal nickel analyst for Wood Mackenzie in London
PRICE IMPACT
The surge in nickel prices has benefited nickel producers worldwide, but is also helping to cushion the impact of the ore ban on Indonesia’s export earnings.
Increased earnings for local producers PT Vale Indonesia and PT Aneka Tambang (Antam), who already operate nickel refineries, could offset about half of the lost export revenue from nickel ore exports, says Macquarie.
At current prices, it estimates Indonesia will recover roughly half of the $1.5 billion it earned last year from sales of 585,000 tonnes of nickel in ore, but for less than a quarter of the same reserves.
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