Will Nickel Keep Falling after Indonesian New Export Policy Changes Market Expectations over Ore Supply? SMM Reports

SHANGHAI, Mar. 10 (SMM) – LME nickel lurched higher in February against the background of supply shortages and demand recovery. But, the market tumbled on March 8 after market interpretation of Indonesia's new export policy and growing expectations over US's rate hike in March. 

Indonesia is expected to gradually set export quota and export timetable to further detail its new export ore policy. Market expectations over ore supply shortages will change in March with progress of new export policy in Indonesia and end of monsoon season in the Philippines. 

China Base Metal Output Data in February 2017, SMM Exclusive Data

SMM learns from several domestic large nickel ore traders that Indonesian nickel ore supplies, which have ore inventories on-hand are active in supplying goods to China, in addition to at least exports of 5 million tonnes of low-grade ore (Ni 1.7% below) or 50,000 tonnes in Ni content by Antam. Those suppliers have begun contacting with domestic ore traders from late February-early March. Major market traders predicted that nickel ore available for exports in Indonesia are about 8-10 million tonnes or 80,000-100,000 tonnes in nickel content. 

Nickel ore exports from the Philippines to China are expected to fall to 36.40 million WMT in 2017 due to the declines both in reserves and grades, SMM foresees, down 7.30 million WMT from 2016’s. The Philippines’ environmental crackdown on mining sector is expected to exert a small impact on ore shipments from the country, so SMM factors out the impact when predicting 2017 export volumes from the Philippines to China.  

China Sees Nickel Ore Inventory Declines Narrowing, SMM Reports

To sum up, exports from Indonesia will offset the decline in exports from the Philippines, and the releasing of export quota and timetable by Indonesia will weaken the support on nickel price from supply concerns.  

On March 9, LME nickel tumbled to around $10,000 per tonne, and SHFE three-month nickel slumped to 83,000 yuan per tonne. 

Will the tumble continue in nickel market?

"The tumble has relieved market downward pressures, and no big declines are estimated for the foreseeable future, as no fresh news is expected to come out from Indonesia," says SMM nickel analyst, expecting LME nickel to get support at $9,800-10,000 per tonne in the coming 2 weeks. 

SMM predicts it will need at least 1 – 2 months to see exports from Indonesia. Meanwhile, the shipping capacity in Southeast Asia has been tight recently, so nickel ore shipments from Indonesia are not likely to surge in a short term. Moreover, export quota and timetable are not expected to be set in 1 – 2 months after reviewing the policy path. In early January, Indonesian government announced to release its nickel ore export policy, and announced the detailed plan in early March to lift ban on raw ore, reserves assessment guidance, designate institutions for export assessment and inspection, and application for standard export process. All these took about 2 months, and nickel ore reserves at mines have not been assessed so far.  

At present, nickel ore supply is truly tight. SMM survey finds that domestic high-grade NPI producers are difficult to purchase medium and high-grade ore, and inventories at NPI producers are low, with 1-month stocks at most of small and medium-size producers. 

After SHFE nickel slid to 83,000 yuan per tonne, spot nickel prices were down to 84,000 yuan per tonne in China’s domestic market, and ex-works prices of NPI were estimated to be 860-880 yuan per mtu according to NPI's premium over refined nickel due to free-charge pig iron. The prices have left all domestic high-grade NPI producers in the black, and no producers are willing to sell goods at the price level. To meet production needs, stainless steel mills will either raise the procurement price for high-grade NPI, or shift to refined nickel market and low-grade NPI to produce #300 stainless steel. The buying interest will help prevent nickel prices from falling further. 

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