Indonesia nickel ban to affect non stainless industries more than others - Roskill
Prices of nickel breached USD 16,500 per tonne last Friday, exceeding the price level recorded 12 months previously. Strong performance of the nickel price is forecast to continue as a result of reduced supply of lateritic ore following the Indonesian ban on raw material exports.
According to Roskill, while industry analysts, INSG meetings and Metal Bulletin conferences have predominantly focused on the impact of the ban on the stainless steel industry, non stainless uses of nickel such as plating and nickel alloys may be more at risk of a market upheaval.
Production of nickel pig iron;
The direct effect of the nickel ban has been to cut off the Chinese NPI industry from its primary source of feedstock the high grade lateritic ore supplied by Indonesian mines. Roskill estimates that, in 2013, Chinese production of nickel pig iron was in the range of 460 kilo tonne to 500 kilo tonne Ni. Around 80% of this is believed to have been produced in modern rotary kiln electric furnaces the preferred feedstock for which is ore with a minimum nickel content of 1.5%.
With nickel stocks estimated to have exceeded six to eight months of supply at the time of the ban’s implementation and continued shipments of ore coming from the Philippines, NPI production in 2014 may be only slightly below 2013 levels. With further stockpiles of NPI held by producers and end users alike, growth in stainless steel output in China may slow down, but is unlikely to decline in the near term.
As for the prospects of NPI production in China beyond 2014, the main alternative source of lateritic ore is the Philippines. Its mine production has rivalled that of Indonesia in terms of nickel content and output is forecast to increase at a rate of 15% to 20%py. Although impressive by any standard, such growth would be insufficient to fully cover the gap left by Indonesia, even disregarding the lower grade of the ore mined in the Philippines.
Stainless steel producers facing strategic decisions;
Despite the expected decline in NPI supply, Roskill points out that stainless steel mills have the luxury of being able to rely on a wide range of feedstocks. One alternative available to Chinese steel mills is to step up their reliance on metal scrap to complement their melting mix. As of 2013, China’s external scrap ratio stood at 17%, compared to a world average of 45%. Prior to the Indonesian nickel ban, Roskill forecast the scrap ratio to increase to 21% by 2018, a figure that it says it will revise upwards in the wake of expected stronger demand for secondary sources of nickel following Indonesia’s export ban.
Non stainless end users to feel the crunch;
This abundance of choice in terms of feedstock is dramatically different in non-stainless industries. The largest of these sectors include plating (8.3% of total primary nickel consumption), superalloys and other nickel alloys (4.2% and 7.2% respectively), as well as other alloy steels and a variety of chemical applications including batteries.
Mr Thomas Höhne Sparborth Roskill’s senior nickel analyst said that “These sectors generally favour or, indeed, are critically dependent on high grade material such as nickel powder, pellets, briquettes and cathode. Intuitively, given the lack of their reliance on ferro-nickel or NPI, one might assume these sectors to be relatively insulated from the effects of the Indonesian nickel ban, but in fact the opposite may be true.”
Uncertainty and volatility;
Taking these dynamics into account, to 2018, under the assumption of the Indonesian ban on raw material exports remaining in place, Roskill forecasts nickel prices to increase to USD 24,350 per tonne. But, with uncertainty over smelter projects in Indonesia, the state of the NPI industry in China, the possibility of demand destruction through substitution, and the large but unknown share of stocks of nickel held by investors, increased volatility, speculation and price spikes appear likely.
Source - Strategic Research Institute