Indonesia ban keeping nickel price on the boil

Indonesia surprised the mining world in January putting into effect an outright ban on nickel ore exports.

After a relatively subdued initial reaction on nickel markets – no-one thought the Asian nation would go through with the ban and when it did, the expectation was that the rules would be water down substantially – the price of the steelmaking raw material is now up 33% in 2014.

Indonesia accounted for around a fifth of global supply at an estimated 400,000 tonnes of contained metal so the potential was there for a big impact on the price.

But record inventories around the globe around 287,000 tonnes, massive stockpiling by China's nickel pig iron producers ahead of the ban, and years of growing mine supply (11% per year since 2009 to 2 million tonnes), kept the price near financial crisis levels by the end of January.

Traders only really entered panic mode when supply from the world's largest producer Norilsk was also put in danger due to the possibility of sanctions against the Russian company over the crisis in Ukraine.

With that threat now receding and warehouse stocks still climbing expectations were for something of a correction in the price, but after a slide back below $20,000 in May, the price has strengthened again.

Three-month nickel on the LME was trading at $18,600 a tonne on Wednesday. The nickel price is up from just under $14,000 at the start of the year.

Platts reports Indonesia's decision to ban the export of laterite nickel ore and China switching to suppliers in the Philippines and New Caledonia is what is continuing to keep nickel prices on the boil.

"Prices for cargoes of unprocessed nickel laterite ores have soared in recent months, with reports of 1.9%-nickel ore from the Philippines selling for as much as $145/mt," Resource Capital Research analyst Tony Parry told the market information firm last week.

While nickel is expected to maintain this price level for the next 6-12 months, Parry said there could be a decline once new production comes online. Several producers are trying to restart units or startup new plants, he added.

He cited Australian junior explorer Axiom Mining's plans to start production at its Isabel nickel laterite mine in the Solomon Islands, which could bring around 2 million mt/year of DSO to the market within 15-18 months.

Image of Hienghene, New Caledonia by –epsilon