The Indonesia government finally pushed through a ban on exporting unprocessed exports of nickel and bauxite ore, in a move aimed at forcing companies to refine the minerals on Indonesian soil and then export to increase the value of exports. State owned Indonesian miner, Antam stated that it expects nickel ore production to decline by 87% in 2014 compared to last year, as it plans to now meet the requirements of the domestic industry only following the government’s ban.
After an initially rally on news of an export ban, prices retraced on concerns of oversupply and skepticism over whether Indonesia would implement the policy. With the ban now implemented, expectations are that nickel prices would soon rise to US$15,000/MT. 3M LME Nickel prices climbed over 2.2% on Friday last week to US$13,725/MT, and after the ban came into effect prices surged around 2.4% on Monday to close at US$14,050/MT.
Indonesia accounts for over 15% of global nickel supplies and is a major supplier to China, Japan, India and other nations where its high grade laterite nickel ore is used to produce nickel pig iron, a cheaper alternative for making stainless steel than LME grade high purity nickel.
Chinese nickel pig iron producers have already increased their nickel ore stockpiles to eight months or more, while Japanese ferro nickel producers seem to have stocked for comparatively less period. Japan’s biggest nickel smelter, Sumitomo Metal Mining Co Ltd (SCM), stated that its nickel ore stock piles would be sufficient for around 4 months at current production level. As compared to Australia, Indonesia acted as a low cost alternative for Chinese nickel pig iron producers and stainless steel makers elsewhere for higher quality nickel ores.
Japan is one of the leading stainless steel producers in the global stainless steel landscape and is well known for high quality finished products such as stainless steel seamless pipes, stainless steel pipe fittings, nickel alloy pipes, and nickel alloy plates. In 2012, the country imported around 44% of its nickel ore requirements from Indonesia.
Most of the buyers of nickel ore have already moved to purchase nickel ore from Philippines, New Caledonia, Australia and Russia to replace Indonesian ore, but prices are likely to be higher now on account for higher freight rates.
What will be the impact on Nickel Ore Processing Costs?
There are expectations that Philippine ore exporters may find it difficult to fill in the supply gap, due to difference in ore grades. Producers in China and Japan would need to adjust to the lower grade of ore that comes from the Philippines, and this could add to their processing costs. According to a report from Citigroup, using Philippine ore at 1.5% metal instead of Indonesian ore of 1.8% would mean producers in China would have to process 30% more material to make the same amount of nickel pig iron. That could raise costs as much as US$4,000 per ton. Around 70% of the nickel pig iron producers in China are equipped with technology which prefers high grade nickel ore from Indonesia.
What will be the impact on Stainless Steel Prices?
The growth in China’s nickel pig iron industry, has been one of the major reason for increasing stock piles of high purity nickel at LME monitored warehouses and resulting downturn in nickel prices. If the ban remains in place for an extended period of time, it likely to be positive for the high purity nickel market. Nickel price movements have a direct impact on stainless steel prices, as majority of stainless steel grades contain nickel. The most widely used stainless grades 304 and 316 typically contain 8% and 10% nickel respectively. Over 65% of the nickel consumed in the Western World is used to make austenitic stainless steel. Another 12% goes into superalloys (e.g., Inconel 600) or nonferrous alloys (e.g., cupronickel). Since nickel is by far the most expensive component in stainless steels, it seems that the expected increase in nickel prices in 2014 is likely to push up stainless steel production costs.