Title Nickelback - Government policy impact on Nickel Price Degree of recognition National Media name/outlet ResourceStocks Magazine - Aspermont Media type Duration/Length/Size 1 Page Country Australia Date 1/08/14 Description If anyone still doubted whether government policy could exert major influence on global metals markets, the 2014 Indonesian export ban on low-grade nickel ores has settled the case once and for all. Government policies can make a huge difference.
Nickel prices this year are outperforming all other exchange-traded metals as a direct impact from the Indonesian policy move. Nickel producers in Australia and elsewhere are applauding higher prices and production revenues as a result.
Nickel was certainly in need of a stimulus of one form or other as the global nickel market has been in surplus since the second half of 2011. Consequently, the price of the Devil’s metal had been on a downward path as exchange-based and consumer inventories rose.
Enter the Indonesian government – with sufficient supply-side market share to make a difference to the microeconomics of nickel. Prices for nickel ore at Chinese ports have rocketed. From a low of US$40 per tonne for 1.7-1.8 per cent laterite ore in mid-2013, ore prices have more than doubled since. Given that the Indonesian ban was flagged in 2013, Chinese nickel pig iron (NPI) producers stocked up on ore-feed. Stockpiles are estimated at around 6 months feed buffering the full impact of rising ore prices into the second half of 2014. A partial relaxation of the ban is anticipated in 2015 but the overall impact remains to switch the nickel market firmly into deficit globally – hence the 2014 rise in price front-running the market’s improving fundamentals.
Other political variables also play a role in nickel’s 2014 rise – with the threat of sanctions to Russian mine production given the sovereign ‘Game of Thrones’ playing out in the Crimea peninsula and Eastern Ukraine top of the list. Laterite nickel’s technical challenges to downstream processing also have recurred with under-performing major projects a perennial threat to supply.
The purpose of the Indonesian export ban is a political push to encourage investment in value-adding mineral processing of nickel domestically. It is Indonesia’s rapid rise as a nickel producer over the last decade that makes such a policy achievable. Looking back to 2003 Indonesia was already a significant nickel producer – the source of approaching 150,000 tonnes annual production on a nickel metal basis. Interestingly, that annual production figure was not dissimilar to Australia which produced some 185,000 nickel tonnes in 2003.
Fast-forward to 2013 however and the rise and rise of nickel pig iron production from laterites becomes very clear. Whilst Australia’s production rose to a credible 240,000 nickel tonnes, Indonesia’s production had skyrocketed over the intervening decade to 750,000 tonnes nickel. The Indonesian government saw the opportunity of such a significant market position to influence global nickel dynamics. The plan appears to be on-track, with China now looking to make significant new smelting investments in Indonesia to upgrade the raw nickel laterite ore including the planned commissioning of new Rotary Kiln Electric Furnace (RKEF) supply.
So what does this all mean for existing nickel producers?
Digging Deeper suggests the following key insights:
- Nickel prices of US$20,000 per tonne (and in some cases well above this benchmark) are being widely forecast for 2015 and 2016: Margins should continue to improve, possibly for Australian producers assisted further by a weaker Australian currency versus the United States dollar.
- Any delays to commissioning new nickel pig iron capacity in Indonesia could see metal (and ore) prices spike higher in 2015 and 2016
- 2015 will be a year of deficit in the global nickel market, redressing in-part the surplus stock-builds of 2011, 2012 and 2013. Supply in 2014 is tightening as the year progresses.
- Nickel sulphide producers will continue to enjoy a production cost advantage, on average, over laterite producers
So times have changed quickly in nickel. From a period of sustained over-supply driving weaker prices, government action has caused a market discontinuity. Miners finally have something to thank a government for!
Nickel is back.
Producer/Author Allan Trench Persons Allan Trench