MetalMiner Editor Lisa Reisman recently took a higher reading of the “Risk-O-Meter” for the likelihood of the Indonesian raw material export ban. Here, MetalMiner’s lead forecasting analyst Raul de Frutos examines price implications of the ban and specifically addresses questions that nickel buyers should be asking.
How big is the impact of the export ban on China?
Today, nickel pig iron (NPI) accounts for around 45% of China’s primary nickel consumption. To produce NPI, China needs to buy a type of nickel ore called laterite ore. China almost completely relies on imports from Indonesia and the Philippines, with Indonesia representing 55% of total laterite imports.
Doing the numbers, we can estimate that around 25% of China’s primary nickel consumption is in danger.
Where will China source its nickel requirements if it sees the Indonesian export ban go into full effect?
China will certainly have to find alternative supply sources, including:
- Tapping further mining expansion of laterite in the Philippines. Although this option might seem attractive, there are some issues with it since the ore imported from the Philippines generally represents a lower grade than the one imported from Indonesia – the sticking point is that more than 70% of Chinese NPI producers are equipped with technology that favors higher-grade ore.
- Purchasing mining rights in other countries with laterite resources.
- Increasing refined nickel net imports, which would gradually decrease the global oversupply situation.
Is China likely stockpiling nickel now in anticipation of the ban?
Yes, imports from Indonesia have increased and some analysts point out that by the end of the year, China will have stockpiled almost enough ore to cover the potential lack of supply from Indonesia in 2014.
Will nickel prices likely increase? If so, when?
In my opinion, any estimate of the impact that the exports ban will have on nickel prices is nothing more than a guess. I don’t think nickel supply will be significantly constrained next year due to the ban in exports. However, if Indonesia actually enforces a strict exports ban, prices could start rising at any time due to investors’ speculations and not due to actual supply and demand.
What additional factors should buying organizations look at for nickel price direction?
We have seen price increases since the beginning of December and some people are arguing that prices are rising due to new concerns about the exports ban. However, I wouldn’t call for that yet, since those movements are nothing exceptional outside normal price fluctuations as we commented in our last Monthly MMI® Report.
I think that buying organizations shouldn’t panic yet. We will have to see if Indonesia actually enforces these restrictions and how severe they are. Nickel is still in oversupply and prices are in a long downtrend. The scenario could certainly change, but I think buyers should wait to see how the market reacts before making any early decisions.
How will these developments potentially impact stainless markets?
Nickel price fluctuations directly impact stainless prices. The majority of stainless steels contain nickel. In particular, the most widely used stainless grades – 304 and 316 – typically contain 8% and 10% nickel, respectively. Since nickel is by far the most expensive component in these steels, those percentages make nickel the main driver of stainless prices.