The Conversation (0)
Patrick Buffet, chairman and CEO of French mining and metallurgical group Eramet, recently commented that the nickel market is in an oversupply “crisis.”
At the moment, the issue concerning most nickel market participants is whether or not Indonesia will go through with its proposed ban on unprocessed ore exports.
However, going against that trend, Patrick Buffet, chairman and CEO of French mining and metallurgical group Eramet (EPA:ERA), recently gave voice to a different — and seemingly unconnected — worry: oversupply.
Are those two issues as disparate as they seem? Here, Nickel Investing News investigates that question.
A market in crisis?
Speaking to reporters last week following a board meeting of Societe Le Nickel (SLN), Eramet’s New Caledonia-based subsidiary, Buffet said that the “global overcapacity” of nickel is causing SLN to lose $27 million each month, an Agence France-Presse article states.
“The crisis in the nickel (market) is very, very intense and nobody expected it to reach such a level,” he ominously said.
Explaining further, Buffet commented that nickel prices have been forced below the company’s cost of production by “a steep rise in production from major consumer China,” which in less than a decade has gone from producing no nickel at all to more than 450,000 tonnes per year. As a result, SLN will have to introduce cost-cutting measures and perhaps cut jobs.
Ending on a bleak note, the CEO said he does not expect any improvement for at least two years and predicted that the coming years will be “extremely painful” for the market, as per Agence France-Presse.
The Indonesia factor
So what’s the connecting factor between oversupply and Indonesia? In short, China.
As mentioned, according to Buffet, China is largely responsible for the excess nickel currently on the market. However, it’s a well-known fact that China does not mine that nickel itself — it imports it from Indonesia.
That means Indonesia’s proposed ban on unprocessed ore exports is key to curbing oversupply. Put simply, the ban would force Indonesian nickel miners to process the metal in the country rather than sending it to China. As the country is not yet equipped to handle such processing, the flow of nickel to the market would effectively be curbed.
However, as Nickel Investing News reported earlier this month, it is more likely that Indonesia will opt for a “phased ban that doesn’t put near the same pinch on nickel supply,” as per Mineweb. In that scenario, the Indonesian government might allow exporters to keep shipping ore to China on the condition that they put money into nickel-processing facilities.
Unfortunately, if that is what happens, Buffet may be on the right track with his prediction that tough times are in store for the nickel market.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Related reading:
Can the Anticipated 2013 Nickel Surplus be Reduced?
Upcoming Indonesian Nickel Ore Ban May Boost Prices
Will They or Won’t They? — Indonesia’s Nickel Ore Export Ban