Upcoming Indonesian Nickel Ore Ban May Boost Prices

Nickel has fallen on hard times. Described last week by Platts as “the worst performing base metal,” it’s down 13.6 percent year to date and, according to the International Nickel Study Group, reached a surplus of 74,200 metric tons (MT) in the first half of 2013. Given that the organization in April forecast a total 2013 nickel surplus of 90,000 MT, that number is significant. 

While those statistics may sound bleak, the good news is that the metal’s short-term outlook is significantly more positive. 

Indonesian ban may spur demand

Much of that positivity stems from the expectation that a planned ban on unprocessed ore exports from Indonesia, the world’s main exporter of nickel laterite ore, will cause a short-term uptick in prices. The Indonesian government is considering the ban to prevent exploitation of the country’s mineral resources and to boost its own processing industry, according to a 2012 article from The Wall Street Journal. Most of Indonesia’s nickel is exported to China to be processed into stainless steel.

While Reuters notes that prior to the beginning of August, many nickel market participants believed the ban would either be delayed or would not happen, since then, Pavel Fedorov, deputy chief executive of Norilsk Nickel (MCX:GMKN), has received “high-level assurances that there is a game plan in place that would ensure restriction on export of ore would be in place by January and would be subject to very strict rules and regulations.”

If — and when — that happens, he believes there is “the potential for market stabilization at least to the levels we’ve seen in 2012.”

Similarly, Grant Spoore, an analyst at Deutsche Bank, is quoted by CNBC as saying that “[t]he prospect of some Indonesian disruption, and the improvement in demand indicators could see a price rally of about $2,000 a tonne in Q4 2013/Q1 2014.” Specifically, the firm sees prices rising from the current average of $15,002 per MT to $16,500 per MT in Q4 2013 before increasing to $18,000 per MT in the first quarter of next year.

“Although the medium-term outlook remains weak, we believe the near-term prospects have turned the corner,” said the bank.

Act quickly

Deutsche Bank’s figures suggest that the key for those interested in entering the nickel market is to do so relatively quickly.

While, as mentioned, the firm expects nickel prices to average $18,000 per MT during Q1 2014, it anticipates that the metal’s average price will come in at just $16,875 per MT for the entirety of 2014. From there, it sees prices sinking to $15,800 per MT in 2015 due to “some resolution of the Indonesian ore ban” — a blink-and-you-miss-it opportunity.

London Metal Exchange nickel is currently selling for $14,320 per MT.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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