SHANGHAI, Jan. 16 (SMM) – LME nickel slid by 4.18% on January 11, surrendering all gains in the previous five days, and dived to $9,660 per tonne on January 12, the lowest since September 19, with price fluctuating by nearly $700 per tonne within the day. Trading volumes were up 12,303 to 24,250 lots, while positions were up 2,971 to 258,800 the same d
Trading in nickel market both home and abroad is weakening recently, but weak fundamentals should not be the only one reason behind the big decline. It is Indonesia’s decision to ease its export ban that serves the main culprit for the decline.
Indonesia finally introduced new rules on January 12 that the country will allow exports of nickel ore under certain conditions. It was heard since September 2016 that the country proposed to revise its ban.
In accordance with the new regulations, nickel miners should dedicate 30 percent of their smelter capacity to process low-grade ore (Ni 1.7% below), and the remaining low-grade ore will be allowed to be exported. Companies, that only have a series of required contracts and permits, and complete necessary procedures and checks, will be eligible for exports. Of those, companies should build smelters within five years and pass the government’s inspections on building schedule every six month.
SMM expects the new rules not to exert big impact on nickel price in the short term, if the new policy is implemented strictly, with reasons as below.
First, there are only limited amounts of low-grade ore smelting capacity in Indonesia. Application of low-grade nickel ore is limited in Indonesia, and Antam, recognized by the market, is the only one eligible for exports.
Second, the list of producers eligible for exports remains unknown. It takes time to go through government’s approval if producer is qualified for exports under the new policy. The list of eligible producers for exports is still waiting for confirmation by Indonesian government, SMM learns from Antam.
Third, NPI output growth will mainly come from Chinese NPI projects in Indonesia in 2017.
Fourth, China’s nickel ore imports depend on domestic demand.
In comparison of Indonesian and Philippine nickel ore, domestic buyers prefer to use high-quality Indonesian ore under allowable conditions. Calculated by export quotas of 15 million wet tonnes of low-grade ore applied by Antam, approximately 10.5 million wet tonnes of ore, or 160,000 tonnes in Nickel content will be allowed for exports.
SMM also hears different voices from the market due to uncertainties over Indonesia’s policy.
First, how much volumes will be allowed for exports remains uncertain. The condition for exports under the new policy is that companies should have smelting capacity, but some nickel ore mining firms may export goods via other eligible ones.
Third, the definition of dedicating 30 percent of their smelter capacity to process low-grade ore (Ni 1.7% below) may probably weaken boundaries of the requirement given limited application of this type of ore in the country.
Hence, the negative impact from Indonesia’s new policy may not as big as market estimation.
In China’s domestic nickel market, downstream producers are wary of purchasing refined nickel as the 2017 Chinese New Year holiday is nearing. After New Year holiday, goods from bonded area flowed into domestic market, weighing down domestic nickel prices. But, surging prices of ferrous metals recently pushed up nonferrous metals. The surge in ferrous metal market is expected to continue, and this will continue support nickel market. If the Philippines announce its final result of environmental crackdowns, nickel price will change with it, but actual impact will be small. SMM expects SHFE nickel to hover at lows before the 2017 Chinese New Year holiday in late January.