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Nickel markets have been roiled by the announcement that the
Indonesian government would bring forward a ban on nickel ore
exports from 2022 to January 2020. Rumors had been swirling since
July that the Indonesian government would bring forward a ban on
nickel ore exports from 2022. Nickel prices on both the London
Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) increased
sharply throughout July and August, prior to the official
announcement on August 30. The LME nickel spot price jumped by 14%
in two trading days following the announcement to settle at
$18,622/metric on Monday, 2 September. The LME nickel price has
since moderated back below $18,000/metric ton but remains at its
highest level since 2014 and sits 56% higher than June's monthly
price average of $11,967/metric ton.
Indonesia is a major supplier of nickel ores and concentrates to
the global market, accounting for 27% of global mined production in
2018. The Indonesian government initially implemented a ban on
unprocessed ore exports in 2014 to incentivize investment in local
processing capacity. While a significant amount of refining
capacity, primarily financed by Chinese investors, has been built
in Indonesia since 2014, China remains the largest source of
refined nickel.
Indonesia was previously the largest provider of nickel ore
imports for China's domestic nickel refineries. The output, in
turn, is used as feedstock for China's sizable stainless steel
industry. Imports of nickel ore from the Philippines into China
increased in 2014 after the initial Indonesian export ban was put
in place. While Chinese imports of nickel ore from Indonesia picked
up following Indonesia's ban suspension in 2017, the Philippines
remains the dominant source of nickel ore for China. Looking at the
next 12-24 months, China's reduced reliance on Indonesian nickel
ore suggests less price disruption this time compared with the
first ban in 2014.
While Indonesia will no longer export nickel ore as of January
2020, it continues to export increasing amounts of nickel pig iron,
stainless steel slab, and stainless steel sheet abroad, where China
is a main customer. Thus, while Indonesian nickel ore exports will
fall, higher exports of higher-value-added downstream nickel
products will offset the loss—exactly the Indonesian
government's aim.
Given the two-month run-up in prices during July and August over
speculation around the Indonesian export ban, our view is the
disruption to supply has already been priced-in with little upside
risk at this point. Weak demand growth across all major markets
along with elevated stainless steel inventories will also act as a
headwind.
Bottom line: IHS Markit anticipates the LME
nickel price will move moderately lower over the near term once the
short covering is completed. We view $15,400/metric ton as a new
floor for LME nickel prices and forecast prices to move back down
toward this level by year-end.
Posted 11 September 2019 by Amanda Eglinton, Associate Director – Pricing and Purchasing, IHS Markit