(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON Jan 13 Almost exactly three years ago
Indonesia rocked the global nickel market by banning the export
of unprocessed minerals.
At the stroke of a presidential pen the flow of nickel ore
feeding China's massive stainless steel sector was cut off.
Now Indonesia has done it again, this time by part reversing
The London Metal Exchange nickel price initially
slumped 5 percent on the news to a four-month low of $9,660 per
tonne before recovering to $10,275 at the Thursday close.
The tremors have spread to the equities market with the
shares of Australia's nickel producers and Indonesia's own PT
Vale Indonesia experiencing similar turbulence.
The fear is that Indonesia will ramp up both production and
exports again, reversing a shift to supply shortfall in the
global nickel market and killing off a budding rally in the
price from the February 2016 low of $7,550.
But will it? Not only is there considerable devil in the
detail of this latest policy flip-flop but much has changed in
the nickel supply chain since 2014.
The first thing worth noting about Thursday's announcement
is that it shouldn't really have come as a total shock.
As long ago as February last year Indonesia's minister for
energy and minerals resources said that some sort of partial
revision to the export ban was possible, even probable.
The domestic debate has raged very publicly ever since,
pitting the country's miners, including state-controlled PT
Aneka Tambang (Pt Antam), against investors, mainly
Chinese, who have committed to building nickel processing
capacity in the country.
The government itself has been split between those arguing
that the ban was achieving its goal of forcing value-added
production against those more concerned over the loss of export
The nickel market's problem is that it has failed to read
correctly the Indonesian policy debate.
There is an analogy with the original ban here. Although it
too shocked the market, it had been signposted as early as 2009
when the legal groundwork was set.
It's just the market bet that the Indonesian government
wouldn't do it. It was wrong then and it has been proved wrong
again this time around.
The second key point about this latest policy shift is that
it does not amount to a wholesale lifting of the ban on nickel
As explained by Indonesia's Coal and Minerals Director
Bambang Gatot, exports will only be allowed of low-grade ore,
defined as 1.7 percent or less contained metal, by processors
who have excess material after meeting a minimum 30-percent
usage threshold in their plants.
Which, frankly, is as clear as mud, or indeed as a handful
of wet nickel ore.
You can just about discern the logic in this messy
compromise. The presumed aim is to reward those who have
committed to investing in processing capacity by allowing them
to generate revenues from selling surplus ore.
But who is producing what from what sort of ore and how much
is potentially classified surplus to requirements and therefore
available for export are unknown, probably to the Indonesian
The only clear short-term winner is Pt Antam, which runs its
own ferronickel plant but which had historically also mined and
exported ore up until the January 2014 ban.
The loss of those export revenues has squeezed the company's
revenues to the point that it has publicly warned it wouldn't be
able to invest in downstream processing capacity.
The company, according to David Wilson, analyst at Citi, may
be sitting on up to 20 million tonnes of stockpiled ore. That
could represent as much as 250,000 tonnes of contained nickel
which could be "now potentially available to the market".
(Global Commodities Focus, Jan. 12, 2016).
Emphasis on the word "potentially" in that sentence. How
much PT Antam will be allowed to export is of course dependent
on the devilish detail.
Interestingly, PT Antam has been lifting its ore mining
activities this year above and beyond what it needs for its own
Production totalled 1.1 million wet tonnes in the first nine
months of 2016, up from 432,500 tonnes in the year-earlier
That's because PT Antam is now selling ore to the new
processing plants that have been built since 2014. Sales to
domestic third parties totalled 631,500 tonnes in the
January-September 2016 period, compared with zero in 2015.
It's a sign that the government drive towards value-added
processing has partly succeeded.
Where once unprocessed ore flowed to China to feed that
country's nickel pig iron (NPI) sector, which in turn fed the
stainless sector, more NPI is being produced in Indonesia
There is now a steady flow of NPI to China, albeit one that
is confusingly lumped into the ferronickel category by Chinese
China's NPI sector, moreover, has not given up the ghost and
died away as was widely expected in the immediate aftermath of
the 2014 Indonesia ban.
Ore supply has been supplemented by imports from the
Philippines and, more recently, New Caledonia, while producers
have upgraded technologies to reduce costs and become more
integrated with stainless steel production facilities.
All of which, combined with the lack of clarity as to how
much Indonesian ore can now be exported, translates into a very
And that's the real reason why nickel has been rocked again
The market was working to a clear narrative. One in which
Indonesia kept its ban in place, Philippine ore supply
diminished due to that country's environmental clamp down
and the market moved to persistent supply deficit,
eating up the stocks overhang that has accumulated over the last
A key part of that narrative has just been challenged and
analysts have gone back to their supply-demand spreadsheets to
try and understand the implications of the Indonesian policy
It may yet prove to be not as bearish as feared but for now
nickel's comforting bull(ish) story-line has just been put on
(Editing by Susan Thomas)