Indonesia forecasts that nine nickel-processing plants may be completed this year after the largest mined producer banned raw ore exports in January, spurring a rally in refined prices to the highest level since 2012.
The plants comprise two ferronickel and seven nickel-pig-iron smelters, according to data from the Energy and Mineral Resources Ministry. One chemical-grade alumina plant is also scheduled to be completed this year, the data showed.
Southeast Asia’s largest economy is seeking to force a move toward processed commodities, betting that repercussions from the ban such as job losses will be offset by investment in new plants and output of higher-value products. The metal used in stainless steel is the biggest gainer this year among the six main metals traded on the London Metal Exchange amid concern that the ban will raise costs and spur a global deficit.
“Greenfield smelters are horribly expensive and drag down the profitability of even the best ore-mining operations,” said Xavier Jean, a credit analyst at Standard & Poor’s in Singapore. The prospects for completions this year are unrealistic, Jean said in an interview.
As many as 63 smelters may be built by 2017, including 40 nickel plants, 10 iron ore smelters and four copper-cathode smelters, according to the ministry’s data, which was presented at a seminar in Jakarta on April 30.
Construction work at 30 companies may be 80 percent to 100 percent complete this year, mostly for nickel and some iron projects, R. Sukhyar, director general of coal and minerals at the Energy and Mineral Resources Ministry, said on May 7.
Nickel rallied 9 percent last week, the biggest gain since February 2010, as disruption to a plant in New Caledonia deepened the supply concern spurred by Indonesia’s curbs. Today, the metal rose as much as 4.9 percent to $20,870 a metric ton, the highest since February 2012, and traded at $20,760 at 12:53 p.m. in London. It’s advanced 49 percent this year.
“For a greenfield nickel smelter to be economical, capacity must be at least 10,000 or 15,000 tons of contained nickel per year,” said Jean. “Such a smelter would require several hundred megawatts of electricity capacity and more than $1 billion in investment.”
PT Perusahaan Listrik Negara, the state utility known as PLN, received requests from 25 companies to supply new mineral-processing plants with power as of last month. While investors want electricity at the mines, for example nickel in Halmahera island, there’s not enough capacity there, according to Nur Pamudji, PLN president director.
Indonesia is an archipelago of more than 17,000 islands, with many mineral deposits including nickel and bauxite located away from the most-populated island of Java. Smelters are often sited in remote areas where power stations and infrastructure are lacking, according to Jarman, director-general of electricity at the energy and mineral resources ministry.
Some companies have announced plans for smelters. Sulawesi Mining Investment, a joint venture between Chinese and Indonesian companies, said in March it plans to start output at a 300,000-ton ferronickel smelter in Central Sulawesi in 2015. PT Aneka Tambang (ANTM) and PT Freeport Indonesia, the local unit of Freeport-McMoRan Copper & Gold Inc., are conducting a feasibility study for a copper smelter.
While refined nickel may rally on the ban this year, Chinese investment to expand nickel-pig-iron capacity in Indonesia over the next two years will eventually hurt prices, according to Goldman Sachs Group Inc.
The global nickel market will swing to a deficit of 132,200 tons next year from a surplus of 13,800 tons this year, Citigroup Inc. said in a report on May 9. Prices may rise to more than $30,000 a ton next year, according to Citigroup.
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