Back in early October at our Commodity EDGE event, Stuart and I speculated on 10 “black swans” that could change metals markets in 2014 and beyond.
We now officially raise the risk levels for one of those 10 events – the Indonesian raw export ban to go into effect January 1. Though I had also penned a piece on the potential impact of some changes with Indonesian tin exports, that issue seems well managed by comparison (in other words, we don’t see the export restrictions on that metal impacting global supply).
The ores involved here include nickel, bauxite, copper, zinc, gold, silver, manganese and iron ore. According to Stratfor, an intelligence firm, these ores account for 11 percent of Indonesian GDP.
The Indonesian export ban will have the greatest potential impact on nickel and bauxite. And whereas back in early October we felt the chance of an outright ban may have stood at 50-50, today we have shifted the odds to 75-25 based on the lack of compromise on the part of lawmakers over the easing of the ban’s rules.
The ban has particular significance for both China and Japan, who remain dependent on Indonesian bauxite (an aluminum raw material) and nickel ore. We will focus our discussion primarily on nickel ore.
Here’s Some Context
The Indonesian government wants to encourage value-add exports, but needs some major investments in its energy sector to support the smelters needed to move the country up the value-added food chain.
It should come as no surprise that smelter capacity and processing capability require lots of energy. Again, according to Stratfor, 30% of the Indonesian population still does not have electricity. And though Indonesia has substantial geothermal and hydropower [potential] capability, both require significant investment.
And that issue by itself will make Indonesia’s attempt at moving up the value chain all the more challenging.
So How Could This Impact Nickel Pricing?
In a follow-up post, my colleague Raul de Frutos will examine the price implications of this ban and specifically address the following questions:
- What is the real impact of the export ban on China?
- Where will China go for its nickel requirements should it see the Indonesian export ban go into full effect?
- Is China likely stockpiling now in anticipation of the ban?
- Will prices likely increase? If so, when?
- What additional factors should buying organizations look at for nickel price direction?
- How will these developments potentially impact stainless markets?