China Still Jonesin’ For High-Grade Laterite Nickel from Indonesia

Indonesian Exports Graph
Source: Reuters

Indonesia is the world’s biggest exporter of nickel ore, refined tin and thermal coal and home to the fifth-largest copper mine and top gold mine, in addition to being a major bauxite, zinc ore and iron ore supplier. We got into how the ban affects copper concentrates in Part One here.

The Indonesian authorities did not offer the same concession to the nickel and bauxite industries as they did to copper, although they did, temporarily, to zinc, lead and iron ore industries.

Indonesia accounts for about 15% of global nickel supplies. It is a major supplier to China where its high-grade laterite nickel, found only in tropical regions, is used to produce nickel pig iron, a cheaper alternative for making stainless steel than high-purity nickel.

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Indonesia’s ore is the best grade for China’s rotary kiln NPI plants and is not easily replaced with supplies from elsewhere – which is why this is such a sticky wicket.

China requires around 850,000 metric tons a year of nickel, nearly half global consumption, with around 450,000 tons of that coming from nickel pig iron. In many ways, Indonesia’s nickel ore position is similar to its position over the last 10 years on tin. It is the dominant world supplier (for which read Chinese supplier), and its material cannot be easily substituted by supplies from elsewhere.

What This Means for Nickel Buyers

In the short term, the loss of Indonesian nickel ore is not going to create the spike in prices some had feared – or hoped, depending on their position – because Chinese buyers have been stocking up inventory for months. Estimates are difficult, but Reuters reports China’s largest NPI producer is said to hold at least 19 million tons of useable ore, enough for half a year of supply.

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But sooner or later, probably four months, possibly six months, from now, those stocks will begin to run down and, depending on the Indonesians’ position at that time, the falling inventory levels could be a support for prices – if not a threat to push them higher.

Coming Up: The ban’s effect on bauxite and iron ore markets.

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